The DCITS.K. Circle, Himatnagar V. Shri Mutrujabhai Hanifbhai Khanisiya, Himatnagar

ITA 1856/AHD/2009

• Counselvise Citation: 185620514 RSA 2009
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 04-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K GUPTA
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Business income; Retrospective amendment
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER ITA NO.1856/AHD/2009 ASSESSMENT YEAR : 2006-07 THE DY.CIT SABARKANTHA CIRCLE HIMATNAGAR VS. MUTRUJABHAI HANIFBHAI KHANUSIYA PROP.OF STARLINE ASSOCIATES AT & PO VIRPUR TAL.HIMATNAGAR PAN/GIR NO. : ADAPK 7129 D ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI S.K. GUPTA, CIT-D.R. RESPONDENT BY: SHRI SUNIL H. TALATI, A.R. DATE OF HEARING : 05/08/2011 DATE OF PRONOUNCEMENT : 31.10.2011 O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS) -X, AHMEDABAD DATED 27/02/2009. THE ONLY SUBSTANTIVE GROUND REA DS AS UNDER: 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS I N DELETING THE DISALLOWANCE OF RS.1,09,81,267/- ON ACCOUNT PAYMENT TO SUB-CONTRACTORS U/S.40A(IA) OF THE ACT, WITHOUT CON SIDERING THE AMENDMENTS BROUGHT TO SECTION 194C(1), 194A, 19 4C, 194H, 194I AND 194J WITH EFFECT FROM 01/06/2002 AND ALSO THE PROVISIONS OF THE SECTION 194C(2) OF THE ACT. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT, 1961 DATED 01/ 12/2008 WERE THAT THE ITA NO.1856/AHD /2009 DY.CIT VS. MUTRUJABHAI HANIFBHAI KHANUSIYA ASST.YEAR - 2006-07 - 2 - ASSESSEE IS A GOVERNMENT CONTRACTOR DOING BUSINESS AS A PROPRIETOR OF STAR LINE ASSOCIATES, THEREFORE ASSESSED IN INDIVIDUAL CAPACITY. AT THIS STAGE, LD. AR MR.SUNIL TALATI HAS CLARIFIED THAT D UE TO TYPING MISTAKE THE STATUS OF THE ASSESSEE WAS INCORRECTLY NOTED IN TH E NOMENCLATURE OF THE ASSESSMENT ORDER AS COMPANY. IN SUPPORT, HE HAS FURNISHED COPIES OF INCOME TAX RETURNS FOR AY 2006-07 AND EMPHASIZED TH AT AS PER COL.6 OF FORM NO.2D, I.E. INCOME-TAX RETURN FORM (SARAL) THE STATUS OF THE ASSESSEE WAS MENTIONED AS INDIVIDUAL. IN RESPECT OF THE ISSUE IN HAND, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD PAID A SUM OF RS.1,09,81,267/- TO SEVE N PARTIES, HOWEVER, NO TDS WAS DEDUCTED AS PER THE PROVISIONS OF SECTIO N 194C OF THE I.T. ACT. PARTIES TO WHOM THE PAYMENTS WERE MADE ARE LISTED BELOW; EXTRACTED FROM THE ASSESSMENT ORDER. 1. BAJRANG CONSTRUCTION RS.10,66,267/- 2. ZAHIR I.KHANUSIYA RS. 7,50,000/- 3. ASHRAFBHAI G.GODAD RS.15,50,000/- 4. DEVSIBHAI T.BABARIA RS.24,00,000/- 5. IZAZ M. KHANUSIYA RS.15,00,000/- 6. RATAN M.GEMIL RS.15,00,000/- 7. SOYAB I.KHANUSIYA RS.22,15,000/- TOTAL RS.1,09,81,267/- 2. A SHOW-CAUSE NOTICE WAS ISSUED TO EXPLAIN THAT W HY THE SAID EXPENDITURE BE NOT DISALLOWED U/S.40A(IA) OF THE AC T BECAUSE OF NON- DEDUCTION OF TDS ON PAYMENT TO THOSE CONTRACTORS. IN COMPLIANCE, ASSESSEE HAS PRIMARILY OBJECTED THAT THE PROVISIONS OF SECTION 194C(1) OF THE ACT WERE NOT APPLICABLE ON INDIVIDUAL ASSESSE E, THEREFORE, THERE WAS ITA NO.1856/AHD /2009 DY.CIT VS. MUTRUJABHAI HANIFBHAI KHANUSIYA ASST.YEAR - 2006-07 - 3 - NO INFRINGEMENT OF LAW AT ALL OF NON-DEDUCTION OF T DS, HENCE, THE EXPENDITURE DESERVES TO BE ALLOWED. FOR READY REFE RENCE, RELEVANT PORTIONS OF THE REPLY ARE REPRODUCED BELOW:- AS REGARDS YOUR PROPOSED ADDITION TOWARDS PAYMENT TO SUB- CONTRACTOR OF RS.1,09,81,267/- WITHOUT DEDUCTING TD S U/S.40A(IA) OF THE INCOME TAX ACT. IN THIS CONNECTION, I HAVE TO INFORM THAT I AM AN INDIVIDUAL AND DOING BUSINESS IN THE PROPRIETARY CAPACITY IN THE N AME AND STYLE OF M/S.STARLINE ASSOCIATES. AS PER SECTION 194C(1) OF THE ACT, INDIVIDUAL ARE N OT SUBJECTED TO DEDUCT THE TAX AT SOURCE FOR THE PAYMENT TO CONTRAC TOR/SUB CONTRACTOR. IT IS IMPORTANT TO NOTE THAT SECTION 194C(1) HAS BE EN SUBSTITUTED BY FINANCE ACT, 2007 AND AS PER THE SUBSTITUTED PROVIS ION NOW W.E.F. 01.06.07 INDIVIDUAL ARE SUBJECTED TO TDS UNDER SECT ION 194C(1) OF THE ACT. HENCE I AM NOT LIABLE TO DEDUCT FOR TDS O N THE PAYMENT TO CONTRACTOR, ACCORDINGLY I HAVE NOT DEDUCTED THE TDS ON THE SAME. I HAVE TO FURTHER SUBMIT THAT AS PER PROVISION OF S ECTION 40(A)(A)(IA) OF THE ACT, EXPENDITURE CAN BE DISALLO WED ONLY WHEN TDS IS DEDUCTIBLE ON SUCH EXPENDITURE. AMOUNT ON WHICH NO TDS IS DEDUCTIBLE CANNOT BE DISALLOWED U/S.40(A)(IA ). ONCE TDS IS NOT DEDUCTIBLE ON ANY EXPENDITURE, THE SAID AMOUNT IS OUTSIDE THE PURVIEW OF THE SECTION 40(A)(IA) OF THE ACT AND HEN CE NO DISALLOWANCE CAN BE MADE IN THIS REGARD. IN VIEW OF THE ABOVE FACTS, I REQUEST YOUR HONOUR N OT TO DISALLOW THE PAYMENT MADE TO CONTRACTORS OF RS.1,09,81,267/- WITHOUT DEDUCTION OF TDS. . THERE ARE 10 PROVISIONS IN THIS CLAUSE RELEVANT TO ASSESSMENT YEAR 2006-07 I.E. FROM (A) TO (J). IN THIS, THERE IS NO REQUIREMENT TO DEDUCT THE TAX FOR THE PAYMENT MADE BY THE CONTRACT OR TO/BY AN INDIVIDUAL. IN FACT LIABILITY FOR DEDUCTION TO/BY AN INDIVIDUAL HAS ITA NO.1856/AHD /2009 DY.CIT VS. MUTRUJABHAI HANIFBHAI KHANUSIYA ASST.YEAR - 2006-07 - 4 - BEEN INTRODUCED ONLY IN FINANCE ACT, 2007 WITH EFFE CT FROM 1.6.2007 BY INSERTING THE 11 TH ITEM(K). THEREFORE, FOR THE YEAR ENDING 31 ST MARCH 2006 RELEVANT TO ASST.YEAR 2006-07 THERE WAS NO LIABILITY ON AN INDIVIDUAL TO DEDUCT THE TAX WHA TSOEVER. THEREFORE, MYSELF BEING INDIVIDUAL I WAS NOT REQUIR ED TO DEDUCT TAX U/S.194C(1), AND THE PROVISIONS OF SECTION 40A(IA) ARE NOT ATTRACTED. 3. THE ASSESSEE HAS ALSO RAISED AN ANOTHER LEGAL QU ESTION THAT SINCE HE HIMSELF WAS A SUB-CONTRACTOR AND NOT A CONTRACTOR, THEREFORE, THE PROVISIONS OF SECTION 194C(2) WERE ALSO NOT APPLICA BLE ON THE ASSESSEE AND IN THIS REGARD, THE RELEVANT PORTION OF THE REP LY IS AS UNDER:- NOTWITHSTANDING THE AFORESAID FACTUAL AND CORRECT POSITION ABOUT NON-LIABILITY OF AN INDIVIDUAL TO DEDUCT TDS UPTO 1 .6.2007, I HAVE TO FURTHER SUBMIT THAT ON THE BASIS OF THE CONTRACT AND OTHER DETAILS VERIFIED BY YOU IT IS CLEAR THAT SO FAR AS I AM CON CERNED, I AM A SUB-CONTRACTOR. I HAVE RECEIVED THE SUB-CONTRACT F ROM THE MAIN CONTRACTOR M/S.G.H. VIJAPURA FOR A DAM WORK. THERE FORE, IT IS ESTABLISHED AND UNCHALLENGEABLY PROVED THAT I AM A SUB CONTRACTOR AND NOT THE CONTRACTOR OF THE MAIN CONTRACT. MYSEL F BEING SUBCONTRACTOR I HAVE FURTHER SUB-SUB-CONTRACTED THE WORK TO SEVEN OUTSIDERS. ACCORDING TO THE CLEAR PROVISIONS OF SE CTION 194C(2) ANY PERSON (BEING A CONTRACTOR AND NOT BEING AN INDIVIDUAL/HUF) THEREFORE, WHEN SUBSECTION(2) IS M ADE APPLICABLE ONLY TO A CONTRACTOR IT JUST DOES NOT APPLY TO SUB- CONTRACTOR . THEREFORE, EVEN U/S.194C(2) I WAS NOT AT ALL REQ UIRED TO DEDUCT TDS ON SEVEN FURTHER SUB-CONTRACTS GIVEN TO THE SMALL SUBCONTRACTORS. ITA NO.1856/AHD /2009 DY.CIT VS. MUTRUJABHAI HANIFBHAI KHANUSIYA ASST.YEAR - 2006-07 - 5 - 3.1. THEREAFTER, THE AO HAS REPRODUCED THE PROVISIO NS OF SECTION 194C AND HELD THAT AN INDIVIDUAL IS ALSO RESPONSIBLE FOR DEDUCTION OF TDS. HE HAS DISALLOWED THE EXPENDITURE VIDE FOLLOWING OBSER VATIONS:- 5. M/S.G.H. VIJAPURA HAS GIVEN SUB CONTRACT TO TH E ASSESSEE. ASSESSEE WAS A SUB CONTRACTOR OF M/S.J.H. VIJAPURA. HEREIN THE ASSESSEE IS PAYING AMOUNT TO HIS SEVEN SUB CONTRACT ORS AS MENTIONED IN ABOVE PARAS. ASSESSEE HIMSELF IS MAIN CONTRACTOR FOR THE MENTIONED SEVEN SUBCONTRACTORS. SO ASSESSEE IS PAYING AMOUNT TO SUBCONTRACTORS AS A MAIN CONTRACTOR. THEREFORE, THE CONTENTION RAISED BY THE ASSESSEE IS NOT ACCEPTABLE. FROM THE ABOVE FACTS ASSESSEES REPLY IS NOT FOUND SATISFACTORY. I, THE REFORE, DISALLOWED RS.1,09,81,267/- U/S.40A(IA) ARE ADDED IN THE INCOME. 4. THE SAID ADDITION WAS CHALLENGED BEFORE THE FIRS T APPELLATE AUTHORITY. 5. THE FIRST AND THE FOREMOST CONTENTION OF THE ASS ESSEE WAS THAT BEING AN INDIVIDUAL WAS NOT WITHIN THE AMBITS OF TH E PROVISIONS OF SECTION 194C OF THE I.T.ACT. THE SECOND CONTENTION WAS THA T CLAUSE (K) WAS INTRODUCED IN SECTION 194C(1) WITH EFFECT FROM 01/0 6/2007. ASSESSMENT UNDER APPEAL IS 2006-07. IT HAS ALSO BEEN CONTES TED THAT THE PROVISIONS OF SECTION 194C(2) ALSO DO NOT APPLY BECAUSE THE AS SESSEE HAPPENED TO BE A SUB-CONTRACTOR. HE HAS INFORMED THAT A CONTRAC T WAS GIVEN BY THE EXECUTIVE ENGINEER, GOVERNMENT OF GUJARAT TO A MAIN CONTRACTOR, M/S. G.H. VIJAPURA. THE ASSESSEE WAS GIVEN IN TURN A SU B-CONTRACT OF EARTH- FILLING. TO GET THE WORK DONE, THE ASSESSEE HAS EN GAGED SEVEN SUB- CONTRACTORS AND MADE PAYMENTS TO THOSE SEVEN PARTIE S. THOSE SEVEN SUB-CONTRACTORS/PARTIES ARE INDEPENDENTLY ASSESSED TO TAX. THE ASSESSEE ITA NO.1856/AHD /2009 DY.CIT VS. MUTRUJABHAI HANIFBHAI KHANUSIYA ASST.YEAR - 2006-07 - 6 - HAS ENTERED INTO A SECONDARY CONTRACT AND HE WAS NOT THE MAIN CONTRACTOR. THE LD.CIT(A) HAS CONSIDERED THOSE S UBMISSIONS AND THEREAFTER HELD AS UNDER:- 5.5. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE LD.A.R. CAREFULLY. THERE IS NO DISPUTE ABOU T THE FACT THAT THE APPELLANT IS AN INDIVIDUAL WHO IS RUNNING A PROPRIE TARY CONCERN. FURTHER, HE IS NOT A CONTRACTOR AS STIPULATED UNDER THE PROVISIONS OF SEC.194C OF THE ACT. AS PER THE FACTS OF THE CA SE M/S.G.H.VIJAPURA & CO. IS A CONTRACTOR WHO HAS SUB- CONTRACTED THE WORK TO THE APPELLANT DURING THE RELEVANT PERIO D. THIS IS EVIDENT FROM THE AGREEMENT DATED 11.11.2005 ENTERED INTO BY M/S.G.H.VIJAPURA & COMPANY AND THE APPELLANT, THE C OPY THEREOF HAS BEEN FILED DURING THE APPELLATE PROCEEDINGS. T HEREFORE, UNDER THESE CIRCUMSTANCES, THE PROVISIONS OF SEC. 194C(1) OF THE ACT ARE NOT APPLICABLE IN THE CASE OF THE APPELLANT. THE P ROVISIONS OF CLAUSE(K) WHICH HAS BEEN INSERTED IN THE SUB-SECTIO N (1) OF SEC.194C W.E.F. 1.6.2007 ARE NOT APPLICABLE IN THE SENSE THAT THE PAYMENTS WERE MADE BY THE APPELLANT DURING THE FINA NCIAL YEAR 2005-06. THE PROVISIONS OF TDS U/S.194C(1)(K) HAVE NOT BEEN BROUGHT IN THE ACT WITH RETROSPECTIVE EFFECT. 5.6. I ALSO AGREE WITH THE CONTENTION OF THE LD. A. R. THAT THE PAYMENTS MADE BY THE APPELLANT TO THE AFORESAID SEV EN PARTIES DO NOT FALL WITHIN THE PURVIEW OF SEC.194C(2) OF THE A CT AS SAME IS APPLICABLE TO THE CONTRACTORS. IT HAS ALREADY BEEN STATED ABOVE THAT APPELLANT IS A SUB-CONTRACTOR DURING THE RELEV ANT PERIOD OF TIME. THEREFORE, IN VIEW OF THE ABOVE, THE PAYMENT S MADE BY THE APPELLANT TO AFORESAID SEVEN PARTIES ARE NOT HIT BY THE PROVISIONS OF SEC.194C OF THE ACT. IN VIEW OF THIS, THE EXPENSES UNDER REFERENCE CANNOT BE DISALLOWED UNDER THE PROVISIONS OF SEC.40 (A)(IA) OF THE ACT. THEREFORE, THE ADDITION OF RS.1,09,81,267/- M ADE BY THE A.O. IS HEREBY DELETED. ITA NO.1856/AHD /2009 DY.CIT VS. MUTRUJABHAI HANIFBHAI KHANUSIYA ASST.YEAR - 2006-07 - 7 - NOW THE REVENUE IS IN APPEAL BEFORE US. 6. FROM THE SIDE OF THE APPELLANT LD.CIT-DR. MR.S.K . GUPTA APPEARED AND SUPPORTED THE ACTION OF THE AO. HIS MAIN CONTENTION IS THAT IN THE LIGHT OF THE PROVISIONS OF SECTION 194C ONCE THE PAYMENT HAS BEEN MADE IN TERMS OF AN AGREEMENT, THEREFORE, THE ASSESSEE BEING A CONTRACTOR, WAS LIABLE TO DEDUCT THE TAX AT SOURCE. THE ASSESSEE HAS BEEN GIVEN A CONTRACT AND ON THAT BASIS THE ASSESSEE HAS ENGAGED SEVEN PARTIES, AS LISTED BY THE AO, TO EXECUTE THE CONTRACT THEREF ORE THE PROVISIONS OF SECTION 194C WERE RIGHTLY ATTRACTED BY THE AO. ON THE OTHER HAND, FROM THE SIDE OF THE RESPONDENT MR.SUNIL H.TALATI APPEAR ED AND SUPPORTED THE ORDER OF THE LD.CIT(A). 7. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES A ND CONSIDERING THE FACTS OF THE CASE, IT IS APPARENT THAT ON IDENTICAL FACTS A VIEW HAS ALREADY BEEN TAKEN BY ITAT C BENCH AHMEDABAD IN THE CASE OF SHRI PRASHANT H.SHAH VS. ACIT IN ITA NO.17/AHD/2001 FOR A.Y. 200 7-08 DATED 08/07/2011, WHEREIN VIDE FOLLOWING PARAGRAPHS A VIE W HAS BEEN TAKEN IN FAVOUR OF THE ASSESSEE; REPRODUCED BELOW:- 7. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. W E HAVE ALSO PERUSED THE MATERIAL PLACED BEFORE US IN THE LIGHT OF THE PROVISIONS OF THE ACT AS ALSO THE CASE LAW CITED. BEFORE WE P ROCEED FURTHER, WE MAY LIKE TO POINT OUT THAT THE PROVISIONS OF SEC TION 194C OF THE ACT HAD UNDERGONE CERTAIN VITAL CHANGES IN THE RECE NT PAST. THE MAIN PURPOSE OF INTRODUCTION OF THIS SECTION IN THE ACT IS TO MAKE PROVISIONS FOR DEDUCTION OF TAX AT SOURCE FROM PAYM ENTS MADE TO ITA NO.1856/AHD /2009 DY.CIT VS. MUTRUJABHAI HANIFBHAI KHANUSIYA ASST.YEAR - 2006-07 - 8 - CONTRACTORS AND SUB-CONTRACTORS IN CERTAIN CASES. INCOME TAX IS DEDUCTIBLE AT SOURCE FROM INCOME COMPRISED IN PAYME NTS MADE BY THE PERSONS SPECIFIED IN THIS SECTION. AS PER TH E ORIGINAL SECTION 194C(1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM T O ANY CONTRACTOR FOR CARRYING OUT ANY WORK IN PURSUANCE O F A CONTRACT IS REQUIRED TO DEDUCT 2% TDS. HOWEVER, AS PER SECTION 194C(2), ANY PERSON BEING A CONTRACTOR RESPONSIBLE FOR PAYI NG ANY SUM TO ANY SUB-CONTRACTOR IN PURSUANCE OF A CONTRACT WITH THE SUB- CONTRACTOR FOR CARRYING OUT ANY WORK IS REQUIRED TO DEDUCT TAX @ 1% AT THE TIME OF PAYMENT. SUB SECTION (2) HAS LATER ON MADE A PROVISION ACCORDING TO WHICH AN INDIVIDUAL OR HUF, WHOSE TOTAL SALES EXCEEDS THE MONITORY LIMIT PRESCRIBES U/S.44A B SHALL BE LIABLE TO DEDUCT INCOME TAX AT THE TIME OF PAYMENT TO A SUB- CONTRACTOR. IT IS FURTHER IMPORTANT TO MENTION T HAT VIDE AN AMENDMENT WITH EFFECT FROM 1/6/2007 AN INDIVIDUAL O R HUF HAVE ALSO BEEN INDUCTED VIDE SUB-CLAUSE (K) IN SECTION 1 94C(1) OF THE IT ACT. AT THIS JUNCTURE, IT IS WORTH TO HOLD THAT AS FAR AS THE AY IN HAND IS CONCERNED, I.E. AY 2007-08, THIS LATEST AM ENDMENT OF SECTION 194C(1)(K) OF THE ACT BEING INTRODUCED WITH EFFECT FROM 01/06/2007 HAS NO APPLICABILITY. WE THEREFORE H OLD THAT IF THE REVENUE DEPARTMENT HAD MADE AN ENDEAVOUR TO INVOKE THE PROVISIONS OF SECTION 40(A)(IA) FOR THE INFRINGEMEN T OF THE PROVISIONS OF SECTION 194C OF THE ACT BY HOLDING TH AT THE ASSESSEE BEING AN INDIVIDUAL GOT COVERED BY SUB-SECTION(1), THEN ACCORDING TO US, IT WAS AN INCORRECT APPLICATION OF LAW. WE T HEREFORE HOLD THAT FOR THE ASSTT.YEAR UNDER CONSIDERATION 2007-08 THE PROVISIONS OF SUB-CLAUSE(K) OF 194C(1) ARE NOT APPLICABLE BEIN G INTRODUCED W.E.F. 1.6.2007 AND THE ASSESSEE BEING AN INDIVIDUA L IS CONSEQUENTLY OUT OF THE CLUTCHES OF THIS CLAUSE. 7.1. ON ACCOUNT OF THE ABOVE DISCUSSION, THE ISSUE CONFINES TO THE RESIDUAL SUB-SECTION I.E. THE APPLICABILITY OF PROVISIONS OF SUB- SECTION(2) OF SECTION 194C OF THE ACT. THE PECULIA RITY OF THIS CASE IS THAT A CONTRACT WAS AWARDED TO M/S.PETRONET LNG LTD. NEW DELHI FOR CONSTRUCTION WORK OF PERIPHERAL AND APPRO ACH ROADS AT LNG TERMINAL DAHEJ. THEREAFTER, THE SAID CONTRACTO R HAD ENTERED INTO A SUB-CONTRACT WITH M/S.A.N.S. CONSTRUCTION LT D., WHO IN TURN, HAD ENTERED INTO AN ANOTHER SUB- CONTRACT WITH THE ASSESSEE. THE WORK TO BE CARRIED OUT BY THE ASSESSEE, THEREFORE P ERTAINED TO ITA NO.1856/AHD /2009 DY.CIT VS. MUTRUJABHAI HANIFBHAI KHANUSIYA ASST.YEAR - 2006-07 - 9 - CONSTRUCTION OF PERIPHERAL APPROACH ROADS. TO CARR Y OUT THE ABOVE WORK, THE ASSESSEE HAD TO PURCHASE CONSTRUCTI ON MATERIAL, VIZ. SAND, GRAVELS, ETC. IN ORDER TO BRING THE C ONSTRUCTION MATERIAL AT THE CONSTRUCTION SITE AT DAHEJ, THE ASS ESSEE HAS AVAILED THE SERVICES OF SEVERAL TRANSPORTERS. THE ASSESSEE HAD MADE PAYMENT UNDER THE HEAD TRANSPORT CHARGES. THE VIEW OF THE AO WAS THAT ON PAYMENT OF TRANSPORT CHARGES, THE ASSESSEE BEING A SUB-CONTRACTOR WAS REQUIRED TO DEDUCT THE T AX AT SOURCE AS PRESCRIBED UNDER SUB-SECTION (2) OF SECTION 194C OF THE ACT. ON THE OTHER HAND, THE ASSESSEES CONTENTION IS THAT A LTHOUGH THE ASSESSEE COULD BE A SUB-CONTRACTOR M/S.A.N.S. CONST RUCTION LTD., BUT VIS--VIS TRANSPORTERS THE ASSESSEE HAS NOT ACT ED AS A SUB- CONTRACTOR BUT ONLY AS A CONTRACTOR. AS PER ASSESSE ES CONTENTION IT WAS A PRINCIPAL TO PRINCIPAL ARRANGEMENT OF TRANSPO RTATION OF GOODS, SO NOT COVERED BY ANY OF THE SAID CONTRACTS . IN SUPPORT OF THIS SUBMISSION, THE ASSESSEE HAS PLACED RELIANCE O N A BOARDS CIRCULAR NO.715 DATED 8/08/1995 [215 ITR (STATUTE 12)] WHEREIN THE CHANGES INTRODUCED IN THE PROVISIONS REGARDING TAX DEDUCTION AT SOURCE HAVE BEEN CLARIFIED AND THEREIN ONE OF TH E QUESTIONS WAS ABOUT THE PAYMENT TO TRANSPORTS AND THE CLARIFICATI ON WAS AS UNDER:- QUESTION 9: IN CASE OF PAYMENTS TO TRANSPORTS, CA N EACH GR BE SAID TO BE A SEPARATE CONTRACT, EVEN THOUGH P AYMENTS FOR SEVERAL GRS ARE MADE UNDER ONE BILL? ANSWER : NORMALLY, EACH GR CAN BE SAID TO BE A SEPARATE CONTRACT, IF THE GOODS ARE TRANSPORTED AT ONE TIME. BUT IF THE GOODS ARE TRANSPORTED CONTINUOUSLY IN PURSUANCE OF A CONTRACT FOR A SPECIFIC PERIOD OF QUANTITY, EACH GR WILL NOT BE A SEPARATE CONTRACT AND ALL GRS RELATING TO THAT PERIOD OR QUANTITY WILL BE AGGREGATED FOR THE PURPOSE OF THE TDS. 8. IN THE CONTEXT OF ABOVE CLARIFICATION ISSUED BY THE CBDT, IF WE EXAMINE THE ISSUE IN HAND, THEN IN TERMS OF THE PROVISIONS OF SECTION 194C(2) OF THE ACT CONDITIONS TO BE SATISFI ED ARE (I) THAT THE ASSESSEE SHOULD BE A CONTRACTOR, (II) THAT THE ASSESSEE SHOULD ENTER INTO A CONTRACT WITH A SUB-CONTRACTOR, (III) THAT THE SUB-CONTRACTOR SHOULD CARRY OUT ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR AND (IV) THAT THE PAYMENT SHOULD BE MADE FOR THE WORK DONE. IN A ITA NO.1856/AHD /2009 DY.CIT VS. MUTRUJABHAI HANIFBHAI KHANUSIYA ASST.YEAR - 2006-07 - 10 - CASE, WHEN A CONTRACT IS ASSIGNED, GENERALLY THE CLAUSES ARE STRINGENT THAT THE CONTRACTOR IS TO BE RESPONSIBLE FOR ALL THE ACTS AND DEFAULTS COMMITTED. IN THE PRESENT CASE AS WEL L, WHEN THE M/S.A.N.S. CONSTRUCTION LTD. HAD GRANTED SUB-CONTRA CT DATED 30/1/2006 TO M/S.SAKHI CONSTRUCTION,( PROP. APPELLA NT) THEN VIDE CLAUSE (1) THE ASSESSEE WAS TO DEPLOY HIS OWN RESOU RCES IN TERMS OF MANPOWER & MACHINERY. FURTHER VIDE CLAUSE (2) ASSES SEE HAD UNDERTAKEN THE RESPONSIBILITY OF ANY LEGAL OR FINAN CIAL LIABILITY. THE ASSESSEE HAS INDEMNIFIED THE FIRST PARTY, I.E. M/S.A.N.S. CONSTRUCTION LTD. AGAINST ANY LEGAL OR FINANCIAL LI ABILITY IF ARISE IN FUTURE PERTAINING TO THE SAID CONTRACT. ASSESSEE WAS MADE SOLELY RESPONSIBLE FOR THE EXECUTION OF THE JOB. THESE C LAUSES, THEREFORE, SUGGESTED THAT THE ASSESSEE WAS WHOLLY AND EXCLUSI VELY RESPONSIBLE FOR THE ACTS AS ALSO FOR THE DEFAULTS, IF COMMITTED. ON THE OTHER HAND, THE LORRY OWNERS OR THE TRANSPORTER S WHO HAD BEEN GIVEN TRANSPORTATION CHARGES HAVE NOT BEEN FASTE NED WITH ANY OF THE ABOVE LIABILITIES, MEANING THEREBY THE TRAN SPORTERS WERE NOT THE PART OF THE SAID AGREEMENT AND THE ASSESSEE HAD AN INDEPENDENT ARRANGEMENT WITH THEM. IN OTHER WORDS, PECULIARITY OF THIS CASE IS THAT THE SUB-CONTRACT WHICH WAS ASS IGNED TO THIS ASSESSEE WAS NOT FURTHER SUB-CONTRACTED TO THE LOR RY OWNERS. IN A SUB-CONTRACT, A PRUDENT CONTRACTOR GENERALLY INCL UDE THE CLAUSES OF LIABILITY WHICH WERE UNDERTAKEN BY HIM WHILE ACC EPTING THE EXECUTION OF THE WORK FROM THE MAIN CONTRACTOR. W E MAY LIKE TO CLARIFY THAT A CONDITION OF PASSING OF THE LIABILI TY CAN NOT EXHAUSTIVE AND CAN NOT BE SAID TO BE THE ONLY CRI TERIA TO DECIDE WHETHER THERE WAS AN EXISTENCE OF CONTRACT OR SUB-C ONTRACT. THE CATALOG OF CRITERION MUST INCLUDE CERTAIN OTHER CL AUSES AS WELL, YET IN THIS CASE THIS CRITERIA CAN BE DETERMINATIVE CO NSIDERING THE NATURE OF WORK ASSIGNED BY THE ASSESSEE TO TRANSPOR TERS. IT IS NOT THE CASE OF THE A.O. THAT HE HAPPENED TO BE IN POSS ESSION OF SOME MATERIAL TO ALLEGE THAT THERE EXISTED A SPECIFIC CO NTRACT BETWEEN THE ASSESSEE AND THE TRANSPORTERS. WHETHER THE GOODS WE RE TRANSPORTED IN PURSUANCE OF ANY SUB-CONTRACT SO AS TO APPLY TH E PROVISIONS OF SEC.194C(2)? NOTHING HAS BEEN BROUGHT ON RECORD. S O IT WAS NOT ESTABLISHED THAT THE LORRY OWNERS HAVE UNDERTAKEN A NY PART OF THE IMPUGNED SUB-CONTRACT WHICH WAS FOUND TO BE RISK AS SOCIATED VIDELICET THIS ASSESSEE. WE, THEREFORE, CONCLUDE T HAT IN THE ABSENCE OF TRANSFER OR PASS-OVER OF ANY CONTRACTUAL RESPONS IBILITY TO ITA NO.1856/AHD /2009 DY.CIT VS. MUTRUJABHAI HANIFBHAI KHANUSIYA ASST.YEAR - 2006-07 - 11 - TRANSPORTERS AS A SUB-CONTRACTOR, THE ASSESSEE BEIN G AN INDIVIDUAL WAS NOT RESPONSIBLE FOR THE DEDUCTION OF TAX AT SOU RCE AS PRESCRIBED U/S.194C(2) OF THE IT ACT. CONSEQUENCE THEREUPON THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT WERE INCORR ECTLY INVOKED, HENCE THE VIEW TAKEN BY THE AUTHORITIES BELOW ARE H EREBY REVERSED. GROUND IS ALLOWED. 8. SINCE A VIEW HAS ALREADY BEEN TAKEN BY THE RESPE CTED CO-ORDINATE BENCH AFTER CONSIDERING THE RELEVANT PROVISIONS OF THE IT ACT, HENCE RESPECTFULLY FOLLOWING THE SAME, WE HEREBY AFFIRM T HE VIEW TAKEN BY THE LD.CIT(A). RESULTANTLY, THE GROUND RAISED BY THE R EVENUE IS HEREBY DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. SD/- SD/- ( G.D. AGARWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 31 / 10 /2011 PRONOUNCED IN THE COURT SD/- SD/- (AM) (JM) AKG MKS 31.10.11 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-X, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD