Sk. Safiuddin, Kolkata V. I.T.O., Ward -32(2), Kolkata, Kolkata

ITA 964/KOL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9349 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2011
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 03-06-2009
• Court: TRIBUNAL
• Department Lawyers: B B MOHANTY
• Keywords: Onus to prove
• Section: 194C

Judgement Text

1 , C , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- C , KO LKATA [ . . . . . . . . , , , , . .. . . .. . , , , , ! ] [BEFORE SHRI D.K. TYAGI, J.M. & SHRI C.D. RAO, ACCOUNTANT MEMBER ] ' ' ' ' / ITA NO. 964 (KOL) OF 2009 #$% &' / ASSESSMENT YEAR 2006-07 SK. SAIFUDDIN KOLKATA. (PAN-AUHPS2758N) INCOME-TAX OFFICER, WARD-32(2) KOLKATA. (*+ / APPELLANT ) - $ - - VERSUS - (.*+/ RESPONDENT ) *+ / 0 / FOR THE APPELLANT: SRI INDRANIL BANERJEE .*+ / 0 / FOR THE RESPONDENT: SRI B.B. MOHANTY, CIT 1 / ORDER ( . . . . . . . . ) , , , , (D.K.TYAGI), JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 2 006-07 IS DIRECTED AGAINST THE ORDER DATED 24.3.2009 OF C.I.T.(A)-XIX, KOLKATA. TH E ASSESSEE HAS RAISED SEVERAL GROUNDS WHICH ARE ALL DIRECTED AGAINST THE ACTION O F LD. C.I.T.(A) IN CONFIRMING THE DISALLOWANCE OF LABOUR CHARGES OF RS.2,70,42,450/- U/S. 40(A)(IA) OF THE ACT. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PERF ORMING DESIGNING AND EMBROIDERY WORK ON THE DRESS MATERIAL AND CLOTHES SUPPLIED BY DIFFERENT SHOPKEEPERS MAINLY FROM KOLKATA UNDER HIS PROPRIETORSHIP CONCERN M/S. MODER N ENTERPRISE. IN FORM 3CD OF THE AUDITORS REPORT, NATURE OF BUSINESS OR PROFESSION OF THE ASSESSEE WAS NOT MENTIONED. FOR DOING THIS JOB, THE ASSESSEE ENGAGES LARGE NUMB ER OF LABOURERS WHO ARE CONTROLLED AND SUPERVISED BY NUMBER OF TEAMS HEADED BY SENIOR, EFFICIENT AND TRUSTED WORKERS. THESE LABOURERS WORK AT THEIR HOMES AND ARE CONNECT ED TO THE ASSESSEE THROUGH THE LEADERS OF THE TEAM. THE ASSESSEE RECEIVED PAYMENTS FROM DIFFERENT SAREE SHOPSKEEPERS AFTER DEDUCTION OF TAXES AT SOURCE U/S. 194C FROM T HE PAYMENTS MADE TO HIM. THE BASIC MATERIAL, CLOTHES ARE SUPPLIED BY THE SHOPKEEPERS A ND THE OTHER ACCESSORIES BEING STITCHING MATERIALS AND ARTICLES ARE SUPPLIED BY TH E ASSESSEE HIMSELF. DURING THE YEAR UNDER APPEAL, THE ASSESSEE DEBITED AN AMOUNT OF RS. 2,70,42,450/- AS LABOUR CHARGES IN 2 HIS ACCOUNT. HOWEVER, NO TAX HAD BEEN DEDUCTED AT S OURCE FROM SUCH PAYMENT OF LABOUR CHARGES. THE A.O. REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY TDS WAS NOT DEDUCTED FROM SUCH LABOUR CHARGES. IN RESPONSE, THE ASSESSE E SUBMITTED THAT THE NONE OF THE LABOUR PARTIES WAS EITHER CONTRACTOR OR SUB-CONTRAC TOR. THE ASSESSEE MADE PAYMENTS OF LABOUR CHARGES TO THE LABOURERS AND ALSO THE PRICES OF THE MATERIALS AND SINCE THE LABOURERS WERE NOT THE CONTRACTORS OR SUB-CONTRACTO RS OF THE ASSESSEE, THERE WAS NO QUESTION OF DEDUCTING ANY TAX AT SOURCE U/S. 194C O F THE ACT FROM THE SAID PAYMENTS MADE BY THE ASSESSEE. THERE WAS NO CONTRACT BETWEE N THE ASSESSEE AND THE LABOURERS OR EVEN WITH THE LEADERS. THE LEADERS ALSO DID NOT WO RK FOR SUPPLYING LABOURERS TO THE ASSESSEE. THEY ONLY COORDINATED AND SUPERVISED THE WORK. THEREFORE, PROVISIONS OF SEC. 194C WERE NOT ATTRACTED IN THE GIVEN CIRCUMSTANCES AND THE ASSESSEE HAS RIGHTLY NOT DEDUCTED TAX AT SOURCE FROM THE LABOUR PAYMENTS MAD E TO THE LABOURERS. THE A.O. WAS NOT CONVINCED WITH THE SAID EXPLANATION OF THE ASSE SSEE. HE HELD THAT THE NATURE OF PAYMENTS ARE OF JOB CHARGES OR IN A WAY PAYMENTS TO SUB-CONTRACTORS FOR EXECUTING THE JOB WORKS FOR THE ASSESSEE, WHICH ATTRACT THE PROVI SIONS OF SEC. 194C. AS THE ASSESSEE DID NOT DEDUCT TDS FROM SUCH PAYMENTS OF LABOUR CHA RGES, PROVISIONS OF SEC. 194C WERE CLEARLY APPLICABLE TO THE CASE OF THE ASSESSEE. IN THAT VIEW OF THE MATTER, THE A.O. MADE DISALLOWANCE OF THE LABOUR CHARGES TO THE EXTENT OF RS.2,70,42,450/- U/S. 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 :- (4.2) I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND HAVE GONE THROUGH THE OTHER DETAILS AND DOCUMENTS FILED BEFORE ME. DU RING THE RELEVANT PREVIOUS YEAR, THE APPELLANT HAS ACTED AS A CONTRACTOR AND HAS TAK EN THE JOB WORK OF EMBROIDERY AND ZARI WORK ETC. ON THE SAREES SUPPLIED TO HIM BY THE CONTRACTEES. THE APPELLANT HAS RECEIVED AN AMOUNT OF RS.2,97,41,168/- ON ACCOUNT O F JOB WORK CHARGES ON WHICH THE TAX WAS DEDUCTED AT SOURCE BY THE RESPECTIVE CONTRA CTEES. THE APPELLANT HIMSELF HAS NOT COMPLETED THE SAID CONTRACTUAL JOB WORK BY EMPL OYING HIS OWN LABOUR AND KARIGARS AT HIS FACTORY/BUSINESS PREMISES. IN ORDER TO EXECU TE THE CONTRACT/JOB WORK RECEIVED BY THE APPELLANT, HE HAS GIVEN THE SAID WORK TO VAR IOUS PERSONS/KARIGARS, HAVING EXPERTISE IN DOING THE EMBROIDERY ETC. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A.O. THAT THE APPELLANT HAS PAI D AMOUNT OF RS.2,70,42,450/- TO 77 PERSONS FOR THE PURPOSE OF COMPLETION OF JOB REC EIVED BY HIM FROM THE CONTRACTEES. IT WAS ALSO OBSERVED BY THE A.O. THAT IN ALL THE 77 CASES, THE PAYMENT ON ACCOUNT OF LABOUR CHARGES WAS EXCEEDING RS.50,000/- TO EACH PERSON. HOWEVER, WHILE MAKING THE PAYMENT ON ACCOUNT OF LABOUR CHARGES, TH E APPELLANT HAS NOT DEDUCTED THE 3 TAX AS PER THE PROVISIONS OF SECTION L94C(2) OF INC OME TAX ACT. BEFORE THE A.O. IT WAS CONTENDED BY THE APPELLANT THAT HE IS IN THE BU SINESS OF EMBROIDERY AND STITCHING. HE PROCURED ORDERS FROM DIFFERENT SHOPS, FAMOUS FOR THE BUSINESS OF ZARI SAREES. HE HAS GOT HIS OWN LABOUR THOUGH TEMPORARY, BUT THEY A RE BECOMING PART AND PARCEL OF HIS BUSINESS. IT WAS SUBMITTED THAT THERE IS NO CONTRAC T OF LUMP SUM VALUE AND NUMBER. THE WORKERS ARE PAID AT DIFFERENTIAL PIECE RATE AS PER DESIGN ETC. EACH AND EVERY WORKER DIRECTLY LINKED WITH THE ASSESSEE. THE SELEC TION OF SUPERVISOR WORKER IS NOT ONLY ESSENTIAL BUT ALSO INEVITABLE. EVERY SAREE REQ UIRES METICULOUS OBSERVATIONS WITCH ARE INFESTED WITH HUGE KNITTING MANIFESTATION WHERE SUPERVISORY PLAYS MOST CRITICAL ROLE IN THE INDUSTRY. IT WAS FURTHER REITERATED BY THE APPELLANT BEFORE THE A.O. THAT HE HAS NO CONTRACTUAL TERM OF SUPPLY AND RATE AND H E PAYS THE WAGES ONLY IN PIECE RATE, INDIVIDUALLY. DURING THE COURSE OF APPELLATE PROCEEDINGS ALSO, THE APPELLANT HAS MADE SIMILAR ARGUMENT CONTENDING THAT THERE WAS NEV ER ANY FORMAL CONTRACT BETWEEN THE APPELLANT AND SUCH CRAFTSMAN/ARTISANS. IT WAS A RGUED BY THE AR THAT THE AO HAS NOT CONSIDERED THE ACTUAL POSITION JUDICIOUSLY BUT HAS PROCEEDED ON A BIASED VIEW. HE HAS MADE HIS OPINION ON THE BASIS PAYMENT TO A PAIC U1AR PERSON WITHOUT CONSIDERING THE AMOUNT RECEIVED BY PARTICULAR CRAFTSMAN/ARTISANS AL THOUGH THE BASIC REQUIREMENT OF TAX DEDUCTION IS THE EXISTENCE OF A CONTRACT. THE R EQUIREMENT OF SECTION 1 94C IS PAYMENT IN PURSUANCE OF A CONTRACT, THE A.O. HAS NOT BOUGHT INTO RECORD ABOUT THE EXISTENCE OF ANY CONTRACT BETWEEN THE APPELLANT AND THE RECIPIENT OF THE LABOUR CHARGES. (4.3) THUS, THE MAIN CONTENTION OF THE APPELLANT IS THAT THERE WAS NO FORMAL WRITTEN CONTRACT BETWEEN THE APPELLANT AND THE PERSONS TO E XECUTE THE WORK. ANOTHER CONTENTION OF THE APPELLANT IS THAT THOUGH THE PAYM ENT HAS BEEN MADE TO THE SPECIFIED PERSON TERMED AS GROUP LEADER, BUT THE SA ID PAYMENT WAS ON ACCOUNT OF A GROUP OF PERSON WORKING ALONG WITH THE SAID SPECIFI ED PERSON. FOR THE BETTER UNDERSTANDING OF THE FACTS OF THE CASE AND APPLICAB ILITY OF PROVISION OF SECTION 194C, IT IS NECESSARY TO LOOK INTO THE PROVISIONS OF SECT ION 194C(2) OF THE ACT WHICH READ AS UNDER: ANY PERSON (BEING A CONTRACTOR AND NOT BEING AN IN DIVIDUAL OR A HINDU UNDIVIDED FAMILY) RESPONSIBLE FOR PAYING ANY SUM TO ANY RESID ENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE SUB-CONTRACTOR) IN PURSUANCE OF A CONTRACT WITH THE SUB- CONTRACTOR FOR CARRYING OUT, OR FOR THE SUPPLY OF L ABOUR FOR CARRYING OUT, THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CON TRACTOR OR FOR SUPPLYING WHETHER WHOLLY OR PARTLY ANY LABOUR WHICH THE CONTR ACTOR HAS UNDERTAKEN TO SUPPLY SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE SUB- CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CAS H OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, D EDUCT AN AMOUNT EQUAL TO ONE PER CENT OF SUCH SUM AS INCOME-TAX ON INCOME COMPRI SED THEREIN: [PROVIDED THAT AN INDIVIDUAL OR A HINDU UNDIVIDED F AMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSIO N CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR C LAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE ACCOUNT OF THE SUB-C ONTRACTOR, SHALL BE LIABLE TO DEDUCT INCOME-TAX UNDER THIS SUB-SECTION. 4 (4.4) IN THE APPELLANTS CASE, THERE IS NO DOUBT AT ALL THAT HE IS A CONTRACTOR WHO HAS TAKEN THE CONTRACT OF JOB WORK OF EMBROIDERY ON THE SAREES SUPPLIED TO HIM BY THE CONTRACTEES. TO EXECUTE THE WORK AWARDED TO HIM BY THE CONTRACTEES HE HAS ENGAGED THE LABOUR THROUGH VARIOUS PERSONS TO WHOM HE HAS M ADE THE PAYMENT OF LABOUR CHARGES. IN TERMS OF PROVISIONS OF SECTION 194C(2) OF THE ACT SUCH PERSONS ARE TO BE TREATED AS SUB-CONTRACTORS BECAUSE THE APPELLANT HA S FAILED TO PROVE THAT THESE PERSONS WERE HIS EMPLOYEES. IT IS IMMATERIAL AS TO WHETHER THE APPELLANT WAS HAVING A FORMAL WRITTEN CONTRACT WITH THEM OR NOT. AN ORAL C ONTRACT IS ALSO CONSIDERED TO BE A CONTRACT FALLING WITHIN THE PURVIEW OF PROVISIONS O F SECTION 194C OF INCOME-TAX ACT. FURTHER IN THE CASE OF APPELLANT FIRST PROVISO TO S ECTION 194C(3) OF THE ACT IS APPLICABLE BECAUSE IN ALL THE 77 CASES OF PAYMENT O F LABOUR CHARGES, THE APPELLANT HAS MADE PAYMENT DURING THE FINANCIAL YEAR, WHICH EXCEE DS RS.50,000/-. UNDER THE CIRCUMSTANCES, THE APPELLANT WAS LIABLE TO DEDUCT T HE TAX U/S. 194C(2) OF THE ACT.. IT IS IMMATERIAL THAT THE PAYMENT TO EACH PERSON WAS M ADE ON BEHALF OF VARIOUS LABORERS WORKING WITH THE SAID SUB-CONTRACTOR. ON PERUSAL OF LEDGER EXTRACT SUBMITTED BY THE APPELLANT, IT IS OBSERVED THAT THE PAYMENT ON ACCOU NT OF LABOUR CHARGES WAS MADE TO 77 PERSONS TERMED AS GROUP LEADER OR SUPERVISOR AND IN TURN THEY HAVE PAID THE WAGES TO VARIOUS WORKERS UNDER THEM. IN VIEW OF ABOVE, IT IS HELD THAT THE PROVISIONS OF SECTION 194C(2) OF THE ACT WERE APPLICABLE TO THE A PPELLANT AND HE WAS REQUIRED TO DEDUCT THE TAX AT SOURCE WHILE MAKING THE PAYMENTS OF SUCH LABOUR CHARGES. HOWEVER THE APPELLANT HAS FAILED TO DO SO. (4.5) AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, IF AN ASSESSEE HAS FAILED TO DEDUCT OR AFTER DEDUCTION AS FAILED TO PAY THE AMOU NT OF TAX ON THE AMOUNTS PAID OR PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RE CIPIENT, FOR CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WOR K, INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK, ON WHICH TAX IS DEDUCTIBLE A T SOURCE UNDER CHAPTER-XVII-B, SHALL NOT BE ALLOWED AS DEDUCTION IN COMPUTING INCO ME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OR BUSINESS OF PROFESSION. AS M ENTIONED ABOVE THE APPELLANT BEING A CONTRACTOR HAS MADE PAYMENT OF LABOUR CHARGES TO HI S SUB-CONTRACTORS AND HENCE HE WAS LIABLE TO DEDUCT THE TAX U/S. 1 94C(2) OF THE I NCOME-TAX ACT. HE CANNOT DENY HIS RESPONSIBILITY OF DEDUCTING THE TAX MERELY FOR THE REASON THAT HE HAS MADE THE PAYMENTS TO THE GROUP LEADER/SUPERVISOR FOR THE SAK E CONVENIENCE. THE APPELLANT HAS FAILED TO PROVE THAT EACH AND EVERY LABOURER/KARIGA R/ARTISAN WERE ENGAGED BY HIMSELF AND THEY WERE NOT SUPPLIED BY THE SO-C&JED GROUP LE ADERS AND SUPERVISORS. SINCE THE APPELLANT HAS FAILED TO DEDUCT THE TAX AT SOURCE, T HE A.O. HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IN MY O PINION THE A.O. HAS RIGHTLY DISALLOWED THE AMOUNT OF RS2,7O,42,45O/- U/S.40(A)(IA) OF THE ACT. UNDER THESE CIRCUMSTANCES, I AM NOT INCLINED TO INTERFERE WITH THE VIEW TAKEN BY THE A.O. THE DISALLOWANCE OF RS.2,70,42,450/- SO MADE IS CONFIRMED. HENCE THIS APPEAL BY THE ASSESSEE. 4. THE ASSESSEES LD. A/R FILED A WRITTEN REPRESEN TATION 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 5 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 UNDER SUPERVISION/L EADERSHIP OF SENIOR, EFFICIENT AND TRUSTED WORKERS FOR CARRYING OUT EMBROIDERY WORK UN DER SOME ARRANGEMENT. IN SPITE OF THIS POSITION, THE C.I.T.(A) PRESUMED EXISTENCE OF ALLEGED CONTRACT BETWEEN THE ASSESSEE AND THE LABOUR HEADS FROM THE BILLS CHARGING PER PI ECE RATE AND THE PASSING THE WORK TO THE LABOUR HEADS. IN SUPPORT OF HIS SUBMISSIONS, T HE LD. A/R RELIED ON THE SEVERAL DECISIONS OF HIGH COURTS AND TRIBUNAL, COPIES OF WH ICH HAVE ALSO BEEN PLACED IN THE PAPER BOOK, AND SOME OF THEM ARE AS BELOW :- A) MRINALINI BIRI MFG. CO. LTD. [105 CTR 327 (CAL)] B) JAHANGIR BIRI FACTORY PVT. LTD. [126 TTJ 567 (CAL)] C) SAMANWAYA VS. ACIT [34 SOT 332 (KOL)] D) 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 SHOPKEEPERS, BOTH THE AUTHORITIES BELOW HAVE BEEN UNDER THE ERRONEOUS IMPRESSION THAT ANYBODY ENGAGED BY HIM TO CARRY ON SOME WORK ON HIS BEHALF WILL BE A SUB-CONTRACTOR. 6 5. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE REASONINGS ADOPTED BY THE LD. 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. ACCORDING TO THE A.O., ASSESSEES CASE FALLS WITHIN THE PURVI EW OF SEC. 194C(2) OF THE ACT AS THE ASSESSEE WAS A CONTRACTOR AND IF LABOUR CHARGES WER E PAID BY THE CONTRACTOR FOR CARRYING OUT ANY WORK INCLUDING 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 DRESS MATERIAL AND CLOTHES FROM DIFFERENT SHOPKEEPERS FOR CARRYING ON EMBROIDERY WORK ETC. ON THESE MATERIALS . THE PAYMENTS MADE BY THESE SHOPKEEPERS TO THE ASSESSEE WERE SUBJECT TO TDS. T HEREFORE, THE ASSESSEE ACTED AS A CONTRACTOR. THE ASSESSEE ENGAGED LARGE NUMBER LABOU RERS UNDER THE SUPERVISION/CONTROL OF TEAMS HEADED BY SENIORO AND EFFICIENT WORKERS AN D HANDED OVER THOSE DRESS MATERIAL AND CLOTHES TO THEM FOR EMBROIDERY WORK AND AFTER C OMPLETION OF WORK THE LABOUR SARDARS/LABAOURERS USED TO RETURN BACK THOSE FINISH ED MATERIALS DULY EMBROIDERED TO THE ASSESSEE AND RAISED BILLS FOR LABOUR CHARGES. 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 7 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 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 THAT THERE IS NO N ECESSITY FOR THE EXISTENCE OF A WRITTEN CONTRACT AND AN ORAL CONTRACT IS EQUALLY VALID. HO WEVER, THERE IS NO DIRECT EVIDENCE ON RECORD TO CONCLUSIVELY HOLD THAT THERE WAS ANY WRIT TEN CONTRACT OR EVEN ORAL CONTRACT AGREEMENT BETWEEN THE PARTIES. FURTHER, IT IS NOT C LEAR FROM THE EVIDENCE ON RECORD WHETHER THE ASSESSEE USED TO GET HIS WORK DONE THRO UGH THE SAME LABOUR SARDARS IN EARLIER OR SUBSEQUENT YEARS SO AS TO PONDER OVER AC TUAL NATURE OF JOB, WHETHER THERE WAS 8 ANY PERMANENT ARRANGEMENT OR IT IS MERE TEMPORARY A RRANGEMENT BETWEEN THE ASSESSEE AND THE LABOUR-HEADS. IF THERE IS EXISTENCE OF PER MANENT CONTRACT BETWEEN ASSESSEE AND LABOUR HEADS ON PRINCIPAL TO PRINCIPAL BASIS, T HEN HOW THE PROVISIONS OF SECTION 194C(2) ARE ATTRACTED. 6.3. THE LEARNED A/R HAS DISPUTED THE STAND OF THE REVENUE THAT ENGAGEMENT OF LABOUR-HEADS/SARDARS FOR EMBROIDERY WORK WAS WORK C ONTRACT BETWEEN THE ASSESSEE AND SUCH LABOUR-HEADS AND THERE WAS A VERBAL/ORAL AGREE MENT FOR THE CONTRACTUAL JOB AS PER BILL RAISED BY THE ASSESSEE PIECE-WISE. IN OUR CONS IDERED OPINION, WHEN THE ASSESSEE CLAIMS THAT THERE WAS NO EXISTENCE OF ANY CONTRACT WITH LABOURERS/LABOUR-HEADS FOR SUCH EMBROIDERY WORK ETC. AND MATERIALS WERE SUPPLIED BY THE ASSESSEE, ONUS SHIFTS UPON THE DEPARTMENT TO PROVE OTHERWISE, MORE SO WHEN THE REV ENUE CLAIMS THAT THERE WAS EXISTENCE OF CONTRACT OR AT LEAST ORAL AGREEMENT. A CCORDING TO SEC. 110 OF THE EVIDENCE ACT, 1872 DEALING WITH BURDEN OF PROOF AS TO OWNERS HIP, WHEN THE QUESTION IS WHETHER ANY PERSON IS OWNER OF ANYTHING OF WHICH HE HAS SHOWN T O BE IN POSSESSION, THE BURDEN OF PROVING THAT HE IS NOT THE OWNER IS ON THE PERSON W HO 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 THE CONTRACTOR, (IV) THE CONSIDERATION FOR THE CONTRACT 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. THUS , REVENUE CLAIMS THAT THERE WAS EXISTENCE OF SUB-CONTRACT AND THESE LABOUR HEADS AR E SUB-CONTRACTORS. IT IS ALSO NOT 9 CLEAR FROM THE RECORDS WHETHER THERE IS ANY CONTRAC T EXISTED ON PRINCIPAL-TO-PRINCIPAL BASIS BETWEEN ASSESSEE AND LABOUR HEADS. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SUBMISSIONS OF TH E 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 THE 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 READJUDICATING THE ISSUE. 7. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 2 1 !3 4 3$ 25 THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON 17.2. 11. SD/- SD/- ( . .. . . .. . ) ! . . . . . . . . , , , , (C.D.RAO) , ACCOUNTANT MEMBER (D.K. TYAGI) , JUDICIAL MEMBER ( (( (! ! ! !) )) ) DATE: 17 -02-2011 1 / .##6 76&8- COPY OF THE ORDER FORWARDED TO : 1. *+ / THE APPELLANT : SK. SAIFUDDIN, C/O. MODERN ENTERPRISE, 11/1-B, MARQUIS STREET, KOLKATA-700 016. 2 .*+ / THE RESPONDENT : I.T.O., WARD-32(2), KOLKATA. 3. #1$ () : THE CIT(A)-XIX, KOLKATA. 4. #1$/ THE CIT, KOL- 5 <# .#$ / DR, ITAT, KOLKATA BENCHES, KOLKATA 6 GUARD FILE . 6 .#/ TRUE COPY, 1$3/ BY ORDER, (DKP) = > / DY/ASSTT. REGISTRAR .