Sri M Balaswamy, Hyderabad V. ACIT, Hyderabad

ITA 894/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59149 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Keywords: Non-deduction of tax
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 894/HYD/2010 ASSESSMENT YEAR 2006-07 SRI M. BALASWAMY, GADWAL (PAN AFKPM4117K) VS THE ACIT, CIRCLE 5(1), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : MOHD. AFZAL RESPONDENT BY : SHRI K.E. SUNIL BABU DATE OF HEARING : 17.11.2011 DATE OF PRONOUNCEMENT : 20.1.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM . THIS APPEAL PREFERRED BY THE ASSESSEE IS DIREC TED AGAINST THE ORDER PASSED BY THE CIT(A) V, HYDERABAD DATED 3.5. 2010 AND PERTAINS TO THE ASSESSMENT YEAR 2006-07. THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER, WHEREIN THE PROVISIONS OF SE CTION 40A(IA) OF THE I.T. ACT WERE APPLIED IN RESPECT OF A TRANSACTI ON OF COLLECTION OF CERTAIN MARK UP FEE/ COMMISSION WHICH WAS RETAIN ED BY THE MAIN CONTRACTOR FOR ALLOTTING THE SUB CONTRACT WORK ASSUMING THAT THE PROVISIONS OF SECTION 194H OF THE I.T. ACT ARE NOT COMPLIED. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT STATED THAT HE WAS A SUB CONTRACTOR FOR M/S RATNA CONSTRUCTIONS AND THE WORKS UNDER SUB CONTRACT WAS FOR RS. ITA NO.894/H/2010 SHRI A. BALASWAMY, HYD. 2 4,32,45,279/- HE STATED THAT THE MAIN CONTRACTOR WH ILE PAYING THE AMOUNT TO THE SUB CONTRACTOR, DEDUCTED ITS COMM ISSION AMOUNTING TO RS. 6,08,813/- AND PAID THE BALANCE AM OUNT. HE FURTHER SUBMITTED THAT SINCE HE DID NOT PAY COMMISS ION THE PROVISIONS ARE NOT APPLICABLE AND PROVISIONS OF SEC TION 194H ARE NOT APPLICABLE TO THE SUB CONTRACTOR. AFTER CONSID ERING THE CONTENTIONS OF THE APPELLANT THE ASSESSING OFFICE R DISALLOWED COMMISSION PAYMENT OF RS 6,08,813/- GIVING THE FOLL OWING REASONS: I HAVE CAREFULLY EXAMINED THE CONTENTIONS OF THE A SSESSEES AR. THE TDS CERTIFICATE FILED BY THE ASSESSEE SHOW S THAT THE MAIN CONTRACTOR PAID THE GROSS AMOUNTS AMOUNT O NLY WITHOUT DEDUCTING THE TAX ON COMMISSION. HENCE THE ASSESSEE OUGHT TO HAVE DEDUCTED OR OUGHT TO HAVE MA DE NECESSARY ARRANGEMENTS FOR DEDUCTION OF TAX ON THE COMMISSION PAYABLE BY HIM U/S 194H. FURTHER THE PROVISIONS OF 194H ARE APPLICABLE TO THE SUB CONTRA CTOR ALSO. HENCE, THE ASSESSEES CONTENTIONS ARE REJECTED. SI NCE THE ASSESSEE FAILED TO DEDUCT TAX ON COMMISSION PAID U/ S 194H OF THE IT ACT, KEEPING IN VIEW THE PROVISIONS OF SE CTION 40A(IA) OF THE IT ACT ENTIRE COMMISSION PAYMENT IS DISALLOWED AND ADDED TO THE INCOME RETURNED. 3. AGGRIEVED BY THE ABOVE ASSESSMENT THE APPEL LANT PREFERRED AN APPEAL BEFORE THE CIT(A) RAISING THE F OLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES THE ORDER O F THE LEARNED ASSESSING OFFICER CONTRACT TO LAW AND FACTS OF THE CASE. ITA NO.894/H/2010 SHRI A. BALASWAMY, HYD. 3 2. THE LEARNED ASSESSING OFFICER ERRED IN ASSUMING THA T THE AMOUNT RETAINED BY THE MAIN CONTRACTOR WHILE ALLOTT ING SUB CONTRACTOR AS COMMISSION. 3. THE LEARNED ASSESSING OFFICER ERRED IN ASSUMING THA T THE ASSESSEE OUGHT TO HAVE DEDUCTED OR OUGHT TO HAVE MA DE NECESSARY ARRANGEMENTS FOR DEDUCTION OF TAX ON COMM ISSION PAYABLE BY HIM U/S 194H, WHILE IN REALITY THE ASSES SEE HAS NOT PAID ANY COMMISSION TO THE MAIN CONTRACTOR. 4. THE ASSESSING OFFICER ERRED IN APPLYING PROVISIONS OF 40A(IA) R.W.S. 194H IN THE CASE OF ASSESSEE AND THEREFORE E RRED IN DISALLOWING AN AMOUNT OF RS 6,08,813/- WRONGLY ASS UMING THE SAME AS COMMISSION. 5. THE APPELLANT CRAVES TO ADD TO/ALTER AMEND/ SUBSTI TUTE/ OMIT AND MODIFY ALL OR ANY OF THESE GROUNDS. DURING THE COURSE OF APPEAL PROCEEDINGS, THE APPEL LANT GAVE FOLLOWING WRITTEN SUBMISSIONS 4. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASS ESSEE IS IN BUSINESS OF EXECUTING CIVIL WORKS DURING THE PERIOD RELEVANT TO THE ASST. YEAR 2006-07 THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S RATNA CONSTRUCTIONS A PARTNERSHIP FIRM HAV ING ITS REGISTERED OFFICE SITUATED AT 8.2.269/N/2 (PLOT NO25) BANJARA HILLS, HYDERABAD 34, FOR EXECUTING THE WORK ALLOTTE D TO RATNA CONSTRUCTIONS BY THE IRRIGATION AND CAD DEPARTMENTS OF GOVERNMENT OF ANDHRA PRADESH. FOR ALLOTTING THESE WORKS TO THE ASSESSEE THE MAIN CONTRACTOR CHARGED CERTAIN FEE AS PER THE CLAUSE 3 OF THE AGREEMENT WHICH IS REPRODUCED BELOW . THE SECOND PARTY HAS AGREED TO PAY MARK UP FEE 2% (TWO PERCENT) ON GROSS BILLS AS CONSIDERATION FOR T HIS AGREEMENT. THE GROSS BILL WILL BE ASCERTAINED AS R EFERRED BY THE IRRIGATION DEPARTMENT, THE FIRST PARTY WILL PAY ITA NO.894/H/2010 SHRI A. BALASWAMY, HYD. 4 BILLS TO THE SECOND PARTY AS AND WHEN THESE ARE COL LECTED FROM IRRIGATION DEPARTMENT BASED ON THE PAYMENT SCHEDULES APPROVED BY IRRIGATION DEPARTMENT. 5. DURING THE PERIOD RELEVANT TO THE ASST YEAR THE MAIN CONTRACTOR ALLOTTED WORK OF RS 4,31,45,279/- AND FR OM THIS AMOUNT DEDUCTED TDS @ 1.122% AND ALSO DEDUCTED AN A MOUNT OF RS 6,08,813/- AS MARKUP FEE AS AGREED AS PER THE SUB CONTRACT AGREEMENT DATED 15.5.2005, MORE SPECIFICA LLY MENTIONED IN CLAUSE 3 OF THE SAID AGREEMENT, WHILE PREPARING THE PROFIT AND LOSS ACCOUNT THE ASSESSEE SHOWN THE MARKUP FEE RETAINED BY THE MAIN CONTRACTOR UNDER THE HEAD COMM ISSION PAID, THE LEARNED ASSESSING OFFICER ASSUMED THIS A MOUNT AS THE COMMISSION PAYMENT IN THE NATURE MENTIONED IN SECTI ON 194H OF THE IT ACT AND ISSUED NOTICE U/S 148 ASSUMING THAT THERE IS ESCAPEMENT OF INCOME IN THE LIGHT OF PROVISIONS OF SECTION 40A(IA) OF THE IT ACT. 6. THE CIT(A) DISMISSED THE ASSESSEES APPEAL HOLD ING AS UNDER: AFTER CONSIDERING ALL THE FACTS OF THE CASE AND ARG UMENTS OF THE ASSESSEE, I FIND THAT THE MARK UP FEE IS ONLY A NOTHER NAME FOR COMMISSION. THE AMOUNT OF 2% ON GROSS BIL LS PAID TO M/S RATNA CONSTRUCTIONS IS FOR SERVICES RENDERED BY WAY OF OBTAINING THE CONTRACT AND SUBSEQUENT SERVICES L IKE CLEARING OF BILLS ETC. THIS IS CLEARLY COVERED IN THE DEFINITION OF COMMISSION U/S 194H OF THE ACT. FURTHER, THE CO NTENTION OF THE ASSESSEE THAT THE AMOUNT WAS FIRST DEDUCTED BY M/S RATNA CONSTRUCTIONS AND THE BALANCE WAS PAID TO THE ASSESSEE IS ALSO NOT CORRECT BECAUSE AS POINTED OUT BY THE ASSESSING OFFICER, THE FULL AMOUNT WAS PAID TO THE ASSESSEE. KEEPING IN VIEW THE ABOVE FACTS AND ITA NO.894/H/2010 SHRI A. BALASWAMY, HYD. 5 CIRCUMSTANCES, I HOLD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CORRECT. 7. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. FROM THE FACTS AND DOCUMENTS FURNISHED IT IS VERY CLEAR THAT THE MAIN CONTRACT IS BETWEEN THE GOVERNMENT AND M/S RATNA CONSTRUCTIONS. THE LATTER HAS GIVEN BACK TO BACK SU BSONCTRACT OF THE JOB TO THE ASSESSEE. THE CONTRACT MONIES WERE P AID BY THE GOVERNMENT TO M/S RATNA CONSTRUCTIONS, WHO HAD IN T URN PASSED THE MONIES TO THE ASSESSEE. WE FIND THAT THE GOVERNMENT HAS DEDUCTED TDS OUT OF THE ENTIRE CONTRACT PAYMENT TO M/S RATNA CONSTRUCTIONS. M/S RATNA CONSTRUCTIONS HAS DE DUCTED TDS AT THE RATES APPLICABLE TO A SUB CONTRACTOR IN RESPECT OF PAYMENTS MADE TO THE ASSESSEE. THE SO CALLED COMMIS SION PAYMENT IS NOTHING BUT THE MARGIN RETAINED BY M/S R ATNA CONSTRUCTIONS. IT IS NOT AS IF THE ASSESSEE HAD REC EIVED THE ENTIRE CONTRACT PAYMENT AND THEN PAID THE `COMMISSION TO M/S RATNA CONSTRUCTION. THE PAYMENT RECEIVABLE AND RECEIVED B Y THE ASSESSEE FROM M/S RATNA CONSTRUCTIONS BY THE AGREEM ENT BETWEEN THE TWO DATED 15.5.2005, IS THE TOTAL CONTR ACT AMOUNT AS REDUCED BY THE ` RS 6,08,813/- AS MARKUP FEE TO BE RETAINED BY M/S RATNA CONSTRUCTIONS. THIS NET AMOU NT WAS PAYABLE BY M/S RATNA CONSTRUCTIONS TO THE ASSESSEE FOR THE WORK DONE BY THE ASSESSEE. ON THIS AMOUNT PAYABLE T O THE ASSESSEE, M/S RATNA CONSTRUCTIONS HAS DEDUCTED TAX AT SOURCE AT THE RATES APPLICABLE TO SUBCONTRACTORS. THUS M/S RATNA CONSTRUCTIONS RECEIVED THE ENTIRE CONTRACT AMOUNT F ROM THE GOVERNMENT ON WHICH THE GOVERNMENT HAS DEDUCTED TDS AT THE RATES APPLICABLE TO THE CONTRACTORS U/S 194C. M/S R ATNA CONSTRUCTIONS PASSED ON THE NET AMOUNT (NET OF THE `MARKUP ITA NO.894/H/2010 SHRI A. BALASWAMY, HYD. 6 FEE OF RS. 6,08,813/- RETAINED BY THEM) TO THE ASS ESSEE, ON WHICH THEY DEDUCTED TDS AT THE RATES APPLICABLE TO SUBCONTRACTORS. IN VIEW OF THIS FACTUAL MATRIX, THE RE IS NO AMOUNT IN THE NATURE OF COMMISSION OR BROKERAGE PAY ABLE BY THE ASSESSEE TO M/S RATNA CONSTRUCTIONS AND HENCE THERE IS NO QUESTION OF THE ASSESSEE DEDUCTING TDS FROM SUCH AM OUNT RETAINED BY M/S RATNA CONSTRUCTIONS. IN THE CIRCUMS TANCES THE DISALLOWANCE MADE BY THE AO OF RS 6,08,813/- THE S O CALLED COMMISSION PAYMENT PAID BY THE ASSESSEE TO M/S RATN A CONSTRUCTIONS FOR NON-DEDUCTION OF TAX AT SOURCE CA NNOT BE SUSTAINED. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON: 20. 1 .2012 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN ) JUDICIAL MEMBER. DATED THE 20 TH JANUARY, 2012 COPY FORWARDED TO: 1. MOHD. AFZAL, ADVOCATE, 11-5-465, FLAT NO.402, SHERS ONS RESIDENCY, CRIMINAL COURT ROAD,M RED, HYDERABAD 2. THE ACIT, CIRCLE 5(1), HYDERABAD 3. THE CIT(A)-V, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/