Md. Ayaz, Kolkata V. ITO, Ward - 53(3), Kolkata

ITA 1998/KOL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2521 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 25-11-2009
• Court: TRIBUNAL
• Department Lawyers: P C NAYAK; T R MEENA
• Assessee Lawyers: S BANDYOPADHYAY
• Keywords: Onus to prove; TDS; Set aside
• Section: 40(a)(ia); 194C; 274

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : KOLKATA [ BEFORE SHRI D.K. TYAGI, J.M. & SHRI B.C. MEENA, A.M. ] I.T.A.NO. 1998 (KOL) OF 2009 ASSESSMENT YEAR 2006-07 MD. AYAZ, VS- INCOME-TAX OFFICER, W ARD-53(3), KOLKATA. (PAN-ACXPA6296P) KOLKATA. ( APPELLANT ) ( RESPONDEN T ) APPELLANT BY : SRI S. BANDYOPADHYAY RESPONDENT BY : S/SRI T.R.MEENA & P.C.NAYAK O R D E R PER SRI B.C.MEENA, A.M. : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 2 006-07 IS DIRECTED AGAINST THE ORDER DATED 17.9.2009 OF C. I.T.(A)-XXXIII, KOLKATA. IN THIS APPEAL, THE ASSESSEE HAS RAISED SEVERAL GROUNDS, WH ICH ARE ALL DIRECTED AGAINST DISALLOWANCE OF RS.1,55,73,606/- U/S. 40(A)(IA) OF THE ACT. THESE GROUNDS READ AS UNDER : 1. THE ORDERS PASSED BY THE LOWER AUTHO RITIES ARE ARBITRARY, ERRONEOUS, INVALID AND BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE LEARNED CIT(A) ERRED IN FAILING TO APPRECIATE THE SIMILARITY IN THE WORKING PROCEDURES IN BIN MANUFACTURING INDUSTRY AND THE APPELLANTS BUSINESS. 3. ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE LEARNED CIT(A) ERRED IN FAILING TO APPRECIATE THAT THE LABOURERS AND ALSO T HE LABOUR-HEADS WORKED UNDER THE APPELLANT ONLY UNDER MUTUAL ARRANGEMENTS AND NOT UNDER ANY CONTRACT AND THAT THEY WERE MERELY PAID LABOUR CHAR GES AND NOT ANY CONTRACT FEES AND HENCE, NO DEDUCTION OF TAX WAS LEGALLY NEC ESSARY FROM THE PAYMENTS MADE BY THE APPELLANT TO THEM. 4. WITHOUT ANY PREJUDICE TO ABOVE GROUN DS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) FAILED TO APPRECIAT E THAT THE PAYMENTS MADE TO THE LABOUR-HEADS INCLUDED COST OF MATERIALS ALSO IN RESPECT OF WHICH AT LEAST, THERE WAS NO NECESSITY FOR DEDUCTION OF TAX AT SOURCE AS THEY MERELY REPRESENTED SALES EFFECTED TO THE APPELLANT. 5. WITHOUT ANY PREJUDICE TO THE ABOVE GR OUNDS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN FAILING TO APPRECIATE THAT IN ANY CASE, NEITHER THE LABOUR HEADS NOR THE LABOURERS WERE SUB- 2 CONTRACTORS OF THE APPELLANT AS THEY DID NOT, IN AN Y WAY, SHARE THE LIABILITIES OF THE BUSINESS ACTIVITIES OF THE APPELLANT. 6. WITHOUT ANY PREJUDICE TO THE GROUNDS NO. 1 TO 3 ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN FAILING TO APPRECIATE THAT TAX WAS NOT DEDUCTIBLE FROM THE PAYMENTS MADE TO THE LABOUR-HEADS AND ALSO TO THE LABOURERS EVEN UNDER THE PROVISIONS OF SECTION 194C(1) OF THE INCOME-TAX ACT, 1961, ALSO, AS THE CONCERNED AMENDM ENT TO SECTION 1 94C OF THE ACT CAME WE.F. 01.06.2006 ONLY AND HENCE, THE P ROVISIONS FOR TAX- DEDUCTION WERE NOT APPLICABLE TO THE YEAR UNDER APP EAL. 7. ULTIMATELY, ON THE FACTS AND IN THE C IRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE U/S 40( A)(IA) OF THE ACT, OF THE PAYMENTS MADE TO THE LABOUR-HEADS (AND ALSO TO THE LABOURERS THROUGH THEM) AT RS. 1,55,73,606/-. 2. THE ASSESSEE CARRIES ON BUSINESS IN THE LINE OF MAKING EMBROIDERY, SEWING WORKS ETC. ON SAREES THROUGH HIS PROPRIETORSHIP CONCERN, WHICH HE RECEIVES FROM THE VARIOUS SHOPS AND STOCKISTS OF SAREES. AS PER AUDITORS RE PORT IN FORM 3CD, ASSESSEES BUSINESS WAS MENTIONED AS LABOUR JOB OF EMBROIDERY WORKS. FOR DOING THIS JOB, THE ASSESSEE ENGAGES LARGE NUMBER OF LABOURERS THROUGH SEVERAL L ABOUR-HEADS. THESE LABOURERS WORK AT THEIR HOMES AND ARE CONNECTED TO THE ASSESSEE TH ROUGH THE LABOUR-HEADS. THE ASSESSEE RECEIVED PAYMENTS FROM DIFFERENT SAREE SHO PS/STOCKISTS AFTER DEDUCTION OF TAXES AT SOURCE U/S. 194C FROM THE PAYMENTS MADE TO HIM. THE ASSESSEE MADE PAYMENT TO THE LABOUR-HEADS WHICH CONSISTED OF THE COST OF MATERIALS LOCALLY PURCHASED BY THEM FOR USE IN EMBROIDERY ON SAREES. DURING THE YEAR U NDER APPEAL, THE ASSESSEE DEBITED AN AMOUNT OF RS.1,55,73,606/- AS LABOUR CHARGES IN HIS ACCOUNT. HOWEVER, NO TAX HAD BEEN DEDUCTED AT SOURCE FROM SUCH PAYMENT OF LABOUR CHAR GES. THE A.O. REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY TDS WAS NOT DEDUCTED FROM SUCH LABOUR CHARGES. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE NONE OF T HE LABOUR PARTIES WAS EITHER CONTRACTOR OR SUB-CONTRACTOR. IT WAS ALSO SUBMITTE D THAT SEC. 194C(1)(K) WAS INTRODUCED W.E.F. 1/6/2007 AND, THEREFORE, THERE WAS NO REQUIR EMENT OF DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE FOR A.Y. 2006-07. THE A.O. WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. HE, THEREFORE, HELD THAT PROVISION O F SEC. 194C(2) WAS APPLICABLE TO THE CASE OF THE ASSESSEE AS HE WAS A CONTRACTOR AND IF LABOUR CHARGES WERE PAID BY THE CONTRACTOR FOR CARRYING OUT ANY WORK INCLUDING SUPP LY OF LABOUR TO THE SUB-CONTRACTOR, IT 3 REQUIRED DEDUCTION OF TAX AT SOURCE U/S. 194C(2) OF THE ACT. IT WAS FURTHER OBSERVED BY THE A.O. THAT ALL THE PAYMENTS MADE BY THE ASSESSEE WERE IN EXCESS OF RS.50,000/- AND NO TDS HAD BEEN MADE THEREFROM. HE, THEREFORE, HEL D THAT THE ENTIRE AMOUNT OF RS.1,55,73,606/- WAS INADMISSIBLE AS PER PROVISION OF SEC. 40(A)(IA) OF THE ACT AND ADDED THE SAME TO THE ASSESSEES TOTAL INCOME. 3. ON APPEAL, THE C.I.T.(A) UPHELD THE ACTION OF T HE A.O. IN DISALLOWING LABOUR PAYMENT U/S. 40(A)(IA) WITH THE FOLLOWING DISCUSSIO NS/OBSERVATIONS :- 2.2. I HAVE GONE THROUGH THE ASSESSMENT ORDER AN D THE SUBMISSIONS OF THE A/R. TO DETERMINE THE CORRECT FACT AS TO THE PAYMENTS OF LA BOUR CHARGES, THE AIR OF THE APPELLANT WAS ASKED TO SUBMIT THE DETAILS OF PAYMEN TS MADE IN RESPECT OF LABOUR CHARGES ALONG WITH SAMPLE BILLS RAISED BY THE WORKE R ON THE ASSESSEE. THE DETAILS WERE SUBMITTED BY THE ASSESSEE SHOWING THE LABOUR C HARGES PAID TO THE LABOUR HEAD AGAINST BILLS RAISED BY THEM AND THEN SUBSEQUENT PA YMENT OF WAGES TO THE LABOURERS BY THE LABOUR HEADS. THE PAYMENT OF LABOUR CHARGES IS THEREFORE NOT BEING MADE DIRECTLY TO THE LABOUR BUT THEY HAVE BEEN ENGAGED E ITHER THROUGH THE LABOUR HEAD OR MASTER TAILOR (OSTAGAR). THESE LABOUR HEADS, TAILOR OR OSTAGAR HAVE BEEN CLAIMED BY THE ASSESSEE TO BE ON THE SAME FOOTING AS MUNSHIS A ND SARDARS IN BIDI MANUFACTURING CONCERNS. PAYMENTS HAVE BEEN MADE BY THE ASSESSEE F IRST TO THESE SO CALLED LABOUR HEADS WHO HAVE RAISED THE BILLS ON THE ASSESSEE. TH ESE LABOUR HEADS HAVE IN TURN MADE PAYMENTS TO THE LABOURERS. THE BILLS HAVE BEEN RAISED BY THE ALLEGED LABOUR HEADS IN THE NAME OF THEIR PROPRIETARY CONCERNS. FO R EXAMPLE HAYAT EMBROIDARY, JABEEN EMBROIDERY, S.S. EMBROIDERY, SHAMIM EMBROIDE RY, M.S. EMBROIDERY, M.Z. EMBROIDERY, KHAKSHA EMBROIDERY, J.A. EMBROIDERY, ST AR EMBROIDERY, S.H. EMBROIDERY AND SO ON. THE BILLS RAISED BY THESE PER SONS GIVES QUANTITY OF SARI. EMBROIDERED AND PER PIECE RATE CHARGED BY THEM BUT THE FULL AMOUNT RECEIVED IS NOT TRANSFERRED. TO THE LABOURS. THE PERCENTAGE OF RETE NTION OF MONEY BY THE LABOUR HEAD IS NOT UNIFORM. IT VARIES 5% TO 10.5% OF THE A MOUNT RECEIVED FROM THE ASSESSEE. THERE IS NO UNIFORMITY IN THE NUMBER OF L ABOURS WORKING THROUGH EACH LABOUR HEAD. THIS VARIES FROM TWO LABOURS UNDER MD. NAUSAD ALAM (LABOUR HEAD) TO THIRTY SEVEN LABOURS BEING ENGAGED BY M/S. M.Z. EMB ROIDERY, PROPRIETOR MD. JABIHULLAH. 2.3. THE ISSUE AS TO WHETHER THE PROVISION OF SEC . 194C(2) IS APPLICABLE IN THE CASE OF THE ASSESSEE OR NOT HAS TO BE DECIDED ON THE FACTS AS ENUMERATED ABOVE. IT WILL ALSO HAVE TO BE SEEN WHETHER ON THESE FACTS THE DECISION OF HONBLE HIGH COURT, KOLKATA IN THE CASE OF MRINALINI BIRI MANUFACTURING COMPANY (P ) LTD. IS APPLICABLE TO THE ASSESSEE OR NOT. 2.4. SECTION 194C(2) COMES INTO PLAY ONLY IN TH E CASE OF PAYMENT MADE BY CONTRACTOR TO A SUB-CONTRACTOR. CONTRACT FOR THE PURPOSE OF SE C.194C(2) INCLUDES CARRY OR SUPPLY OF LABOUR FOR CARRYING OUT, THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR. IN THE CASE OF INDIVIDUAL IT IS APP LICABLE IF THE TURNOVER EXCEEDS RS. 40 LACS. THERE IS NO DISPUTE ABOUT THE FACT THAT TH E ASSESSEE IS A CONTRACTOR AS HE 4 HAS UNDERTAKEN THE JOB OF EMBROIDERY FOR DIFFERENT SAREE SHOPS AND THESE SAREE SHOPS HAVE DEDUCTED TAX TREATING THE ASSESSEE AS A CONTRACTOR. THE ASSESSEE HAS NOT OBJECTED TO BEING A CONTRACTOR EITHER WITH THE SARE E SHOP OR DURING THE ASSESSMENT PROCEEDING OR DURING THE COURSE OF APPEAL. THE BUSI NESS HAS BEEN MENTIONED IN THE 3CD FORM (TAX AUDIT) TO BE LABOUR JOB FOR EMBROIDE RY WORK. SINCE IT HAS UNDERTAKEN TO CARRY OUT WORK FOR THE SAREE SHOP, HE IS COVERED BY THE DEFINITION OF CONTRACTOR FOR THIS SECTION. SO CALLED LABOUR HEAD HAVE GOT THE WORK CONTRACTED BY THE ASSESSEE DONE THROUGH VARIOUS LABOURS/PERSONS. THEREFORE THE LABOUR HEADS ARE COVERED BY THE DEFINITION OF SUB-CONTRACTOR FOR THE PURPOSE OF THIS SECTION WHICHEVER WAY WE LOOK AT IT - CARRYING OUT PART OR WHOLE OF THE WORK UNDERTAKEN BY THE CONTRACTOR OR SUPPLY OF LABOUR FOR CARRYING OUT THE WORK UNDERTAKEN BY THE CONTRACTORS. FURTHER THERE IS NO NECESSITY FOR THE EXISTENCE OF A WRITTEN CONTRACT. AN ORAL CONTRACT IS EQUALLY VALID. IN ANY CASE THE EXISTENCE OF THE CONTRACT BETWEEN THE ASSESSEE AND THE LABOUR HEADS IS EVIDENT FROM T HE PER PIECE RATE CHARGED AND PASSING OF THE WORK UNDERTAKEN UNDER THE CONTRACT T O THE PERSONS TERMED AS LABOUR HEADS. IT IS SEEN IN THE CASE OF THE ASSESSEE THAT THE LABOUR HEADS ARE NOT EMPLOYEES OF THE ASSESSEE AS THEY CARRY OUT WORK UNDER THE NA ME AND STYLE OF THEIR PROPRIETARY CONCERNS. 2.5. IN THE CASE OF MRINALINI BIRI MANUFACTURIN G COMPANY (P) LTD. IT WAS SHOWN BY THE APPELLANT THAT THE MUNSHIS OR SARDARS WERE ITS EMPLOYEES. IT WAS ALSO SHOWN THAT THE WORKERS EMPLOYED THROUGH THE MUNSHIS/SARDARS HA D BEEN ALLOTTED INDIVIDUAL P.F. ACCOUNT NUMBER AND THE ASSESSEE WAS REQUIRED TO DED UCT EMPLOYEES CONTRIBUTION TO P.F. AND ALSO CONTRIBUTED HIS SHARE (EMPLOYER) TO T HE P.F. IT WAS FURTHER SHOWN THAT THE MUNSHIS DID NOT FIX THE WAGES OF THE LABOURS BU T ONLY SUPERVISED THEIR WORK AND WERE MERELY CARRIERS AND DISBURSERS OF WAGES PAYABL E TO THE WORKERS. THE WAGES OF THE BIN BINDERS (LABOUR) WERE FIXED THROUGH AGREEME NT BETWEEN UNION AND THE MANUFACTURER. THE MUNSHIS WERE EMPLOYEES OF THE ASS ESSEE AND THE COMMISSION RECEIVED BY THEM WAS IN THE NATURE OF SALARY WHICH WAS PRODUCTION LINKED AND WAS ON THE BASIS OF RATES FIXED PER THOUSAND BINS BEING PR ODUCED. THESE WERE NOT RETAINED OUT OF THE WAGES OF THE BIN BINDERS BUT PAID SEPARA TELY TO THEM BY MANUFACTURERS. UNDER THESE SET OF FACTS, IT WAS HELD BY THE HONBL E KOLKATA HIGH COURT THAT THE LABOURS WERE DIRECTLY ENGAGED BY THE ASSESSEE AND T HE MUNSHIS WERE THE EMPLOYEES OF THE ASSESSEE (BIRI FACTORY) AND THERE WAS NO OBL IGATION TO DEDUCT TAX AT SOURCE BY THE MANUFACTURERS FROM PAYMENT OF LABOUR CHARGES. 2.6. IN THE COURSE OF APPEAL BEFORE THE UNDERSI GNED IT HAS NOT BEEN SHOWN THAT THE LABOURS ARE THE EMPLOYEES OF THE ASSESSEE. THE ASSE SSE DOES NOT DEDUCT P.F. FROM PAYMENT MADE NOR IT HAS CONTRIBUTED ITS SHARES TO T HE P.F. PAYMENTS WERE NOT MADE DIRECTLY TO THE LABOURERS BUT THROUGH THE BUSINESS CONCERNS OF THE SO CALLED LABOUR HEADS. THE REMUNERATION OF THE LABOUR/WORKER WAS NO T FIXED BY THE ASSESSEE. THE REMUNERATION OF THE LABOUR HEAD WAS ALSO NOT FIXED. CERTAIN AMOUNTS ARE RETAINED BY THEM OUT OF LABOUR PAYMENT RECEIVED FROM THE ASSESS EE. THE RATE OF RETENTION IS NOT FIXED. THE LABOUR HEADS CARRIED OUT THEIR FUNCTION UNDER THEIR PROPRIETARY CONCERN. ALL THESE ESTABLISHED THAT THE LABOUR WAS NOT DIREC TLY PAID FOR THEIR WORK I.E. IT WAS NOT EMPLOYED BY THE ASSESSEE DIRECTLY BUT THROUGH T HE LABOUR CONTRACTOR/WORK 5 CONTRACTOR. THE WORK CONTRACTED BY THE ASSESSEE WAS CARRIED OUT BY THE LABOUR HEADS AS SUB-CONTRACTOR. THEREFORE IT IS TO BE CONC LUDED THAT SO CALLED LABOUR HEADS WERE CARRYING THEIR INDEPENDENT BUSINESS AND WORK A S SUB-CONTRACTOR TO THE ASSESSEE. IN FACT, THE DECISION IN THE CASE OF MRIN ALINI BIRI MANUFACTURING COMPANY (P) LTD. DOES NOT HELP THE ASSESSEE RATHER IT BRING S OUT THE INSTRINSIC DIFFERENCES IN THE METHOD OF OPERATION OF THE TWO BUSINESSES. THE BASIS FOR CONSIDERING THE LABOUR AND THE MUNSHIS/SARDARS AS BEING EMPLOYEES OF THE A SSESSEE IN THE CASE OF MRINALINI BIRI MANUFACTURING COMPANY (P) LTD. DOES NOT EXIST IN THE CASE OF THE ASSESSEE. SINCE THE ASSESSEE IS A CONTRACTOR WHO GETS THE WORK COMP LETED THROUGH SUB-CONTRACTORS (CALLED LABOUR HEAD), HE WAS REQUIRED TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE TO THESE SUB-CONTRACTORS. NO TDS HAS BEEN MADE FROM THE PAYMENTS MADE TO THESE SUB-CONTRACTORS. THE ASSESSEE THEREFORE GETS CAUGHT WITHIN THE MISCHIEF OF SEC. 40(A)(IA) IN RESPECT OF EXPENSES DEBITED AS LA BOUR PAYMENT. THE ACTION OF THE A.O. IN DISALLOWING LABOUR PAYMENT U/S. 40(A)(IA) I S THEREFORE UPHELD. THESE GROUNDS OF THE ASSESSEE FAIL. HENCE THIS APPEAL BY THE ASSESSEE. 4. THE ASSESSEES LD. A/R FILED A WRITTEN SUBMISSI ON AND ALSO ARGUED VERBALLY. ACCORDING TO HIM, SINCE THE ASSESSEE MERELY MADE PA YMENTS OF WAGES (LABOUR CHARGES) TO THE LABOURERS AND ALSO THE PRICES OF THE MATERIALS AND SINCE THE LABOURERS ARE NOT CONTRACTORS OR SUB-CONTRACTORS OF THE ASSESSEE, THE RE WAS NO QUESTION OF DEDUCTING ANY TAX AT SOURCE AS REQUIRED U/S. 194C OF THE ACT FROM THE SAID PAYMENTS MADE BY THE ASSESSEE AND, THEREFORE, PROVISIONS OF SEC. 40(A)(I A) WOULD NOT BE ATTRACTED IN THE CASE OF THE ASSESSEE. HE SUBMITTED THAT THE A.O. HIMSELF HAS ADMITTED THE PAYMENTS AS LABOUR CHARGES WHEN HE WROTE IN THE ORDER THAT THE ASSESSEE FAILED TO DISCHARGE HIS DUTY TO DEDUCT AND DEPOSIT ON LABOUR CHARGES PAID. HE F URTHER SUBMITTED THAT PROVISION OF SEC. 194C(2) IS NOT APPLICABLE TO THE CASE OF THE A SSESSEE, AS ALLEGED BY THE A.O., BECAUSE AS PER THIS SECTION, PAYMENT SHOULD BE MADE TO THE SUB-CONTRACTOR IN PURSUANCE OF A CONTRACT. IN THE CASE OF THE ASSESSEE NEITHER THERE WAS ANY FORMAL CONTRACT NOR ORAL CONTRACT AND THE LABOUR-HEADS WERE NOT SUB-CON TRACTORS OF THE ASSESSEE. THE ASSESSEE ENGAGED SOME LABOURERS THROUGH LABOUR-HEAD S FOR CARRYING OUT EMBROIDERY WORK UNDER SOME ARRANGEMENT. IN SPITE OF THIS POSITION, THE C.I.T.(A) PRESUMED EXISTENCE OF ALLEGED CONTRACT BETWEEN THE ASSESSEE AND THE LABOU R HEADS FROM THE BILLS CHARGING PER PIECE RATE AND THE PASSING THE WORK TO THE LABOUR H EADS. IN SUPPORT OF HIS SUBMISSIONS, 6 THE LD. A/R RELIED ON THE SEVERAL DECISIONS OF HIGH COURTS AND TRIBUNAL, COPIES OF WHICH HAVE ALSO BEEN PLACED IN THE PAPER BOOK, AND SOME O F THEM ARE AS BELOW :- A) ESSKAY CONSTRUCTION CO. [267 ITR 618 (P&H )] B) SIMPLEX CONSTRUCTION [ITA NO. 274 (KOL)/0 9, ORDER DATED 23.10.2009] C) MARINALINI BIRI MFG. CO. LTD. [105 CTR 32 7 (CAL)] D) JAHANGIR BIRI FACTORY PVT. LTD. [ITA NOS. 1173 & 1350/K/08, ORDER DT. 27.3.09] E) MD. HAFIZUL MALLICK [ITA NO.1200/KOL/09, ORDER DATED 13.11.2009] THE LD. A/R ALSO PLEADED THAT EVEN IF IT IS TO BE C ONSIDERED THAT THERE WAS SOME AGREEMENT AND HENCE WORK CONTRACT BETWEEN THE ASSES SEE AND THE LABOURERS AND ALSO THE LABOUR-HEADS REGARDING CARRYING ON EMBROIDERY WORKS ETC., IN ANY CASE, THE LABOURERS AND THE LABOUR-HEADS WERE NOT THE SUB-CONTRACTORS OF TH E ASSESSEE AND THUS THE PROVISIONS OF SEC. 194C(2) WERE NOT AT ALL ATTRACTED TO THE CA SE OF THE ASSESSEE. ACCORDING TO HIM, SINCE THE ASSESSEE HIMSELF ACTS AS A CONTRACTOR OF THE SHOP OWNERS ETC., BOTH THE AUTHORITIES BELOW HAVE BEEN UNDER THE ERRONEOUS IMP RESSION THAT ANYBODY ENGAGED BY HIM TO CARRY ON SOME WORK ON HIS BEHALF WILL BE A SUB-C ONTRACTOR. RELYING ON THE DECISION OF ITAT, VISHAKHAPATNAM BENCH IN THE CASE OF MYTHRI TR ANSPORT CORPN. [(2009) 124 TTJ 970], COPY PLACED IN THE PAPER BOOK, THE LD. A/R PL EADED THAT AS PER CRITERIA LAID DOWN IN THE SAID JUDGMENT, A SUB-CONTRACTOR MUST, TO A GREA T EXTENT, STEP INTO THE SHOES OF THE MAIN CONTRACTOR WITH REGARD TO INVOLVEMENT IN THE E XECUTION OF THE ENTIRE OR PART OF THE MAIN CONTRACT AND ALSO IN UNDERTAKING THE LIABILITI ES FASTENED ON TO THE MAIN CONTRACTOR AND NOR MERELY CARRY ON A PORTION OF THE WORK INDEP ENDENTLY WITHOUT BEING IN ANY WAY RESPONSIBLE FOR THE MAIN CONTRACT LIKE THE MAIN CON TRACTOR. SO FAR AS THE PRESENT CASE IS CONCERNED, THE INDIVIDUAL LABOURERS AND EVEN THE LA BOUR-HEADS ALSO JUST DO THAT PART OF THE WORK SPECIFICALLY ASSIGNED TO THEM BY THE ASSES SEE AND THEY ARE, IN NO WAY, BOTHERED ABOUT THE EXECUTION OF THE CONTRACT UNDERTAKEN BY T HE ASSESSEE. THEY DO NOT HAVE TO FACE THE MAIN CONTRACTEE, I.E. THE SHOP OWNERS/STOC KISTS OF THE SAREES AND THEY ARE NOT AT ALL LIABLE TO THEM. HENCE, THE LABOURERS, IF AT ALL, CAN BE CONSIDERED AS INDEPENDENT CONTRACTORS WITH REFERENCE TO THE ASSESSEE BUT NOT AS HIS SUB-CONTRACTORS. RELIANCE IN THIS CONNECTION WAS PLACED ON THE FOLLOWING DECISIO NS OF TRIBUNAL, COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK :- A) MD. ABDUL BASAR SHEIKH [ITA NO.1037/K/09, ORDER DAT ED 31.7.2009] 7 B) MD. SAMIM SK. [ITA NO.1003/K/09, ORDER DATED 14.9.2 009] C) MD. HAFIZUL MALLICK [ITA NO.1200/KOL/09, ORDER DAT ED 13.11.2009] THE LD. A/R, THEREFORE, SUBMITTED THAT EVEN ALTERNA TIVELY THERE WAS NO LIABILITY FOR THE ASSESSEE TO DEDUCT AT SOURCE FROM THE PAYMENTS MADE TO THE LABOURERS, LABOUR-HEADS ETC. DURING THE YEAR UNDER APPEAL. 5. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND MENTIONED THE REASONINGS ADOPTED BY THE C.I.T.(A) IN DISALLOWING THE LABOUR PAYMENTS U/S. 40(A)(IA) OF T HE ACT. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL PLACED BEFORE US. IT WAS THE CASE OF THE ASSESSEE THAT PROVISION OF SEC. 194C(1) (K) IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, I.E. A.Y . 2006-07. SECTION 194C OF THE ACT SPOKE OF PAYMENTS TO CONTRACTORS AND SUB-CONTRACTOR S AND IT CONTAINED CLAUSES (A) TO (J). THIS SECTION WAS SUBSTITUTED BY THE FINANCE ACT, 20 07 W.E.F. 1.6.2007 AND CLAUSE (K) WAS INSERTED BELOW CLAUSE (J), WHICH READS AS UNDER :- 194C .(1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREINAFTER IN THIS SECTION REFERRED TO AS THE CONTRACTOR) FOR CAR RYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURS UANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND .. .. (K) ANY INDIVIDUAL OR A HINDI UNDIVIDED FAMILY, WH OSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUS E (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANC IAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE ACCOUNT OF THE CONTRACTOR, SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACC OUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CH EQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO (2) ONE PER CENT IN CASE OF ADVERTISING, (II) IN ANY OTHER CASE TWO PER CENT, OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THERE IN: THEREFORE, DURING THE RELEVANT ASSESSMENT YEAR, WIT H WHICH WE ARE CONCERNED, CLAUSE (K) WAS NOT EXISTED IN THE STATUTE AND ASSESSEES CASE THUS DOES NOT COME UNDER THE PURVIEW OF THIS CLAUSE. HOWEVER, ACCORDING TO THE A.O., ASS ESSEES CASE FALLS WITHIN THE PURVIEW OF SEC. 194C(2) OF THE ACT AS THE ASSESSEE WAS A CONTR ACTOR AND IF LABOUR CHARGES WERE PAID 8 BY THE CONTRACTOR FOR CARRYING OUT ANY WORK INCLUDI NG SUPPLY OF LABOUR TO THE SUB- CONTRACTOR, IT REQUIRED DEDUCTION OF TAX AT SOURCE U/S. 194C(2). FACTS HAVE BEEN GIVEN ABOVE. HOWEVER, TO REITERATE, THE ASSESSEE USED TO RECEIVE SAREES FROM DIFFERENT SHOP OWNERS AND STOCKISTS FOR CARRYING ON EMBROIDERY WOR K ETC. ON THESE SAREES. THE PAYMENTS MADE BY THESE SHOP OWNERS TO THE ASSESSEE WERE SUBJECT TO TDS. THEREFORE, THE ASSESSEE ACTED AS A CONTRACTOR. THE ASSESSEE EN GAGED LARGE NUMBER LABOURERS THROUGH LABOUR-HEADS AND HANDED OVER THOSE SAREES T O THEM FOR EMBROIDERY WORK. THE LABOURERS USED TO PURCHASE MATERIALS FOR EMBROIDERY WORK AND AFTER COMPLETION OF WORK THE LABOUR-HEADS/LABAOURERS USED TO RETURN BACK THO SE FINISHED SAREES DULY EMBROIDERED TO THE ASSESSEE AND RAISED BILLS FOR LABOUR CHARGES AS WELL AS MATERIALS SUPPLIED. 6.1. NOW WE LOOK INTO THE MEANING OF CONTRACTOR AND SUB-CONTRACTOR. FROM A PERUSAL OF SECTION 194C OF THE ACT, IT IS OBVIOUS THAT A C ONTRACTOR FOR THE PURPOSE OF THE PROVISIONS OF THIS SECTION WOULD BE ANY PERSON WHO ENTERS INTO A CONTRACT WITH THE CENTRAL OR ANY STATE GOVERNMENT, ANY LOCAL AUTHORITY AND CO RPORATION ESTABLISHED BY OR UNDER A CENTRAL, STATE OR PROVINCIAL ACT, ANY COMPANY OR AN Y CO-OPERATIVE SOCIETY FOR CARRYING OUT ANY WORK INCLUDING THE SUPPLY OF LABOUR FOR CARRYIN G OUT ANY WORK AND A SUB-CONTRACTOR WOULD MEAN ANY PERSON WHO ENTERS INTO A CONTRACT WI TH THE CONTRACTOR FOR CARRYING OUT, OR FOR THE SUPPLY OF LABOUR FOR CARRYING OUT, THE W HOLE OR PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR UNDER A CONTRACT WITH ANY OF THE AUT HORITIES NAMED ABOVE OR FOR SUPPLY WHETHER WHOLLY OR PARTLY ANY LABOUR WHICH THE CONTR ACTOR HAS UNDERTAKEN TO SUPPLY IN TERMS OF HIS CONTRACT WITH ANY OF THE AFORESAID AUT HORITIES. HONBLE HIMACHAL PRADESH HIGH COURT HAD THE OCCASION TO DEAL WITH THE MEANIN G OF CONTRACTOR AND SUB-CONTRACTOR IN TERMS OF SEC. 194C IN THE CASE OF ITO V. RAMA NA ND & CO., [163 ITR 702, 704 (HP)]. IN THAT CASE, THE RESPONDENT-FIRM PURCHASED FROM THE G OVERNMENT CERTAIN QUANTITY OF SCENTS OF TIMBER. IT WAS HELD THAT THE RESPONDENT-F IRM WAS NOT A CONTRACTOR WITHIN THE MEANING OF SECTION 194C AS IT HAD NOT ENTERED INTO ANY CONTRACT FOR CARRYING OUT ANY WORK OR FOR SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK W ITH ANY GOVERNMENT, LOCAL AUTHORITY, CORPORATION, COMPANY OR CO-OPERATIVE SOCIETY. THERE FORE, THE PAYMENTS MADE BY THE RESPONDENT-FIRM TO ANY PERSON COULD NOT BE TREATED AS PAYMENTS MADE BY A CONTRACTOR TO A SUB-CONTRACTOR SO AS TO ATTRACT THE PROVISIO N 194C(2). THE RELEVANT PORTION OF THE 9 OBSERVATION OF THEIR LORDSHIPS OF HONBLE HIMACHAL PRADESH HIGH COURT AT PAGE 704 OF THE REPORT IS, TO QUOTE, AS UNDER :- IT IS OBVIOUS FROM THE ABOVE EXTRACTED PROVISIONS T HAT A CONTRACTOR FOR THE PURPOSE OF THESE PROVISIONS WOULD BE ANY PERSON WHO ENTERS INTO A CONTRACT WITH THE CENTRAL OR ANY STATE GOVERNMENT, ANY LOCAL AUTHORIT Y, ANY CORPORATION ESTABLISHED BY OR UNDER A CENTRAL, STATE OR PROVINCIAL ACT, ANY CO MPANY OR ANY CO-OPERATIVE SOCIETY FOR CARRYING OUT ANY WORK INCLUDING THE SUPPLY OF L ABOUR FOR CARRYING OUT ANY WORK AND A SUB-CONTRACTOR WOULD MEAN ANY PERSON WHO ENTERS INTO A CONTRACT WITH THE CONTRACTOR CARRYING OUT, OR FOR THE SUPPLY OF LABOU R FOR CARRYING OUT, THE WHOLE OR PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR UNDER A CONTRACT WITH ANY OF THE AUTHORITIES NAMED ABOVE OR FOR SUPPLY WHETHER WHOLL Y OR PARTLY ANY LABOUT WHICH THE CONTRACTOR HAS UNDERTAKEN TO SUPPLY IN TERMS OF HIS CONTRACT WITH ANY OF THE AFORESAID AUTHORITIES. NOW, IN THE INSTANT CASES, ADMITTEDLY, THE RESPONDENT FIRM HAD NOT ENTERED INTO ANY CONTRACT FOR CARRYING OUT ANY WORK OR FOR SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK WITH ANY GOVERNMENT, LOCA L AUTHORITY, CORPORATION, COMPANY OR CO-OPERATIVE SOCIETY. THE RESPONDENT THUS NOT B EING A CONTRACTOR, THE PAYMENTS MADE BY THIS FIRM TO ANY PERSON CANNOT BE TREATED A S PAYMENTS MADE BY A CONTRACTOR TO A SUB-CONTRACTOR SO AS TO ATTRACT THE PROVISIONS OF SECTION 194C(2) OF THE ACT . [EMPHASIS SUPPLIED] IT IS PERTINENT TO MENTION HERE THAT THE DEPARTMENT FILED S.L.P. BEFORE THE HONBLE SUPREME COURT IN THE ABOVE CASE AND THEIR LORDSHIPS OF HONBLE SUPREME COURT UPHELD THE DECISION OF HONBLE HIMACHAL PRADESH HIGH COURT AND THUS DISMISSED THE S.L.P. [157 ITR (ST) 31]. FROM THE ABOVE, IT IS THUS CLEAR THA T THERE SHOULD BE A RELATION AS CONTRACTOR AND SUB-CONTRACTOR TO CARRY OUT ANY WORK OR FOR SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK. 6.2. THE C.I.T.(A) POINTED OUT THERE IS NO NECESS ITY FOR THE EXISTENCE OF A WRITTEN CONTRACT. AN ORAL CONTRACT IS EQUALLY VALID AND IN THE CASE OF THE ASSESSEE, CONTRACT EXISTED WOULD BE EVIDENT FROM THE PER PIECE RATE CH ARGED AND PASSING OF THE WORK UNDERTAKEN TO THE LABOUR-HEADS. HOWEVER, THERE IS NO DIRECT EVIDENCE ON RECORD TO CONCLUSIVELY HOLD THAT THERE WAS ANY WRITTEN CONTRA CT OR EVEN VERBAL AGREEMENT BETWEEN THE PARTIES. FURTHER, IT IS NOT CLEAR FROM THE EVI DENCE ON RECORD WHETHER THE ASSESSEE USED TO GET HIS WORK DONE THROUGH THE SAME LABOUR-H EADS IN EARLIER OR SUBSEQUENT YEARS SO AS TO PONDER OVER ACTUAL NATURE OF JOB, WHETHER THERE WAS ANY TYPE OF CONTRACT OR MERE ARRANGEMENT BETWEEN THE ASSESSEE AND THE LABOU R-HEADS, AS CLAIMED BY THE ASSESSEE. 10 THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. UNITED RICE LAND LTD. [(2008) 217 CTR 332 (P&H)] UNDER SIMILAR CIRCUMSTAN CES HELD AS UNDER :- THE AO HAD HELD THE ASSESSEE LIABLE FOR DEDUCTION O F TAX ONLY ON THE ASSUMPTION THAT ASSESSEE WAS HAVING AGREEMENT WITH THE PARTIES THRO UGH WHOM TRUCKS WERE ARRANGED FOR TRANSPORTATION OF GOODS. HOWEVER, THE CIT(A) HAS R ECORDED A FINDING OF FACT THAT THERE WAS NEITHER ANY ORAL OR WRITTEN AGREEMENT BETWEEN T HE ASSESSEE AND TRANSPORTERS FOR CARRIAGE OF GOODS NOR IT HAS BEEN PROVED THAT ANY S UM OF MONEY REGARDING FREIGHT CHARGES WAS PAID TO THEM IN PURSUANCE OF A CONTRACT FOR SPE CIFIC PERIOD, QUANTITY OR PRICE. THIS FINDING OF FACT WAS RECORDED BY THE CIT(A) AFTER C ONSIDERING THE CERTIFICATE FURNISHED BY THE TRANSPORTERS. THE TRIBUNAL HAS ALSO RECORDE D A FINDING OF FACT THAT THE DEPARTMENT HAS NOT CONTROVERTED THE SAID FINDING OF THE CIT (A) EVEN BEFORE THE TRIBUNAL. WHILE RECORDING THIS FINDING OF FACT, THE TRIBUNAL HAS CLEARLY STATED THAT NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO TO PROVE THAT THERE WAS WRITTEN OR ORAL AGREEMENT BETWEEN THE ALLEGED PARTIES FOR CARRIAGE OF THE GOO DS. IN VIEW OF THE ABOVE, THE FINDING OF FACT RECORDED BY THE TRIBUNAL IS NOT TO BE INTER FERED WITH. 6.3. AS STATED ABOVE, THE LEARNED A/R HAS DISPUTED THE STAND OF THE REVENUE THAT ENGAGEMENT OF LABOUR-HEADS FOR EMBROIDERY WORK WAS WORK CONTRACT BETWEEN THE ASSESSEE AND SUCH LABOUR-HEADS AND THERE WAS A VERB AL/ORAL AGREEMENT FOR THE CONTRACTUAL JOB AS PER BILL RAISED BY THE ASSESSEE PEACE-WISE. IN OUR CONSIDERED OPINION, WHEN THE ASSESSEE CLAIMS THAT THERE WAS NO EXISTENC E OF ANY CONTRACT WITH LABOUR-HEADS FOR SUCH EMBROIDERY WORK ETC. AND MATERIALS WERE SU PPLIED BY THE LABOURERS, ONUS SHIFTS UPON THE DEPARTMENT TO PROVE OTHERWISE, MORE SO WHE N THE REVENUE CLAIMS THAT THERE WAS EXISTENCE OF CONTRACT OR AT LEAST ORAL AGREEMEN T. ACCORDING TO SEC. 110 OF THE EVIDENCE ACT, 1872 DEALING WITH BURDEN OF PROOF AS TO OWNERSHIP, WHEN THE QUESTION IS WHETHER ANY PERSON IS OWNER OF ANYTHING OF WHICH HE HAS SHOWN TO BE IN POSSESSION, THE BURDEN OF PROVING THAT HE IS NOT THE OWNER IS ON TH E PERSON WHO AFFIRMS THAT HE IS NOT THE OWNER. 6.4. SEC. 40(A)(IA) REQUIRES THAT UNLESS TAX IS DE DUCTED ACCORDING TO SECTION 194C ON PAYMENT TO CONTRACTORS OR SUB-CONTRACTORS, WHICH IN CLUDES SUPPLIER OF LABOURERS FOR CARRYING OUT ANY WORK, IT WILL ATTRACT DISALLOWANCE OF EXPENDITURE. THE HONBLE SUPREME COURT IN BIRLA CEMENT WORKS V. CBDT [2001] 248 ITR 216 HAS LAID DOWN THE CONDITIONS PRECEDENT FOR ATTRACTING THE PROVISIONS OF SECTION 194C, NAMELY, (I) THERE MUST BE A CONTRACT BETWEEN THE PERSON RESPONSIBLE FOR MAKING PAYMENT TO CONTRACTOR, (II) THE CONTRACT MUST BE FOR CARRYING OUT OF ANY WORK, (III ) THE WORK IS TO BE CARRIED THROUGH 11 THE CONTRACTOR, (IV) THE CONSIDERATION FOR THE CONT RACT SHOULD EXCEED RS.10,000,I.E., THE AMOUNT FIXED BY SECTION 194C AND (V) THAT THE PAYME NT IS MADE TO THE CONTRACTOR FOR THE WORK CARRIED OUT BY HIM. THEREFORE, SECTION 40(A)(I A) CANNOT BE READ IN ISOLATION OR TO THE EXCLUSION OF SECTION 194C. IN THE INSTANT CASE, THE CONTROVERSY WAS REGARDING THE PAYMENTS MADE FOR DISBURSEMENT OF LABOUR CHARGES TO LABOUR-HEADS. THE ASSESSEE HAD SPECIFICALLY STATED BEFORE THE LOWER AUTHORITIES TH AT THERE WAS NO CONTRACT BETWEEN THE ASSESSEE AND THE LABOUR-HEADS. WHEREAS IT IS THE CA SE OF THE REVENUE THAT THE ASSESSEES CASE FALLS U/S. 194C(2) OF THE ACT. KE EPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SUBMISSIONS O F THE PARTIES, WE DEEM IT PROPER TO RESTORE THE ISSUE OF DETERMINATION OF EXISTENCE OF ANY CONTRACT BETWEEN THE ASSESSEE AND THE LABOUR-HEADS TO THE FILE OF A.O. IN THE LIG HT OF GUIDELINES ENUNCIATED BY THE HONBLE SUPREME COURT IN THE CASE OF BIRLA CEMENT W ORKS (SUPRA) AS DISCUSSED ABOVE AND THE FACTS OF THE CASE. WE, THEREFORE, SET ASIDE TH E ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE MATTER BACK TO THE FILE OF THE A.O. FOR THE ABOVE PURPOSE. NEEDLESS TO MENTION, THE A.O. SHALL PROVIDE ADEQUATE OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE WHILE READJUCATING THE ISSUE. 7. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE COURT ON 30.6.10. SD/- SD/- [D.K.TYAGI] [B .C. MEENA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30-06-2010 PRONOUNCED BY : SD/- CDR (AM) SD/- DKT(J M) COPY FORWARDED TO : 1. MD. AYAZ, PROP. M/S. FANCY EMB., U-30, FATHEPUR VI LLAGE ROAD, KOLKATA-700 024. 2. I.T.O., WARD-53(3), KOLKATA. 3. CIT (A)-XXXIII, KOLKATA 4. CIT, KOL - 5. THE DEPARTMENTAL REPRESENTATIVE, ITAT, KO LKATA. TRUE COPY, BY ORDER [DKP] DY. REGISTRAR.