THE COMMISSIONER OF INCOMETAX.VISAKHA. V. THE MUNICIPAL CORP.VISAKHAPATNAM.

RC/174/2000

AI Insights

The case revolves around a dispute concerning the obligation of the Municipal Corporation of Visakhapatnam to deduct a surcharge on income tax from payments made to contractors. The Income-tax Officer (TDS), Visakhapatnam, had directed the Municipal Corporation to deduct a surcharge of 12% on top of the 2% tax already deducted at source from payments totaling Rs.6.92 crores made to contractors during the financial year 1991-92. This directive was based on the Finance Act, 1991. However, the Tribunal and the first appellate authority found that the Municipal Corporation was not in default as the obligation to deduct such a surcharge was only introduced by the Finance Act, 1991, which came into effect on April 1, 1991, after the payments in question had been made. The Revenue challenged this interpretation, leading to the reference of the question of law to the High Court.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 718961 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 04-03-2014
• Assessment Year: misc
• Other Referred Cases: SRIRAM REFREGERATION INDUSTRIES vs. INCOME TAX OFFICER, RAJAGOPAL (PV) vs. UNION OF INDIA
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: NO NE APPEARED
• Assessee Lawyers: S R ASHOK
• Keywords: Income Tax; Municipal Corporation; Surcharge; TDS; Finance Act, 1991
• Section: 201; 194C; 201(1A)

Judgement Text

" HON’BLE SRI JUSTICE G. CHANDRAIAH & HON’BLE SRI JUSTICE CHALLA KODANDA RAM RC No.174 OF 2000 JUDGMENT :: ( per Hon’ble Sri Justice Challa Kodanda Ram ) At the instance of the Revenue, below mentioned question of law has been referred to the opinion of this Court as arising from the orders of the Tribunal in ITA No.944/Hyd/93 for the assessment year 1991-92. “ Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in cancelling the orders passed under Section 201 and 201 (1A) of the IT Act, 1961 by holding that there was no legal obligation cast on the Municipal Corporation to deduct at source surcharge on Income-tax also in addition to tax at 2% on payment made to Contractors ? 2. Heard Sri SR Ashok, learned senior counsel appearing for the Revenue. None appeared for the respondent-assessee. 3. The assessee is a local body constituted under the Hyderabad Municipal Corporation Act. During the financial year 1991-92 payments to the tune of Rs.6.92 crores were made to the Contractors after deducting TDS as applicable at 2% on the payments made to the Contractors and credited the same to the account of the Central Government. The Income-tax Officer (TDS), Visakhapatnam, felt that the Municipal Corporation in addition to tax deducted at source at the rate of 2%, should also have further deducted surcharge on the tax at 12% at source itself and should have credited the said surcharge also to the Central Government. Accordingly, surcharge amount was worked out to Rs.2.08 lacs and treated the same as short deduction and passed orders dated 30-10-1992 under Section 194C r/w. Section 201(1) of Income Tax Act, 1961, (for short, ‘the Act’) directing the respondent-Municipal Corporation to make good the short deduction of Rs.2.08 lacs representing the non-deducted surcharge. Obviously, the Income-tax Officer passed the said order treating the Municipal Corporation as an assessee in default under Section 201 of the Act. Further, an amount of Rs.13,028/- was levied towards interest on the short deduction of Rs.2.08 lacs under Section 201 (1A) of the Act and accordingly raised a demand. 4. The respondent-assessee preferred appeal and the first appellate authority on analysis of Section 194C of the Act as existing at that point of time had come to the conclusion that the assessee could not be treated as in default for the reason the liability to deduct 12% at source as surcharge came to be introduced by the Finance Act, 1991 only. The order of the first appellate authority was also confirmed by the Tribunal. 5. Learned counsel for the Revenue would contend that the Tribunal had erred in concluding that there was no obligation on the Municipal Corporation to deduct surcharge at source at the relevant point of time, inasmuch as Clause 5 (2) of the Finance Act, 1991 had imposed a liability, which would apply to the payment made during financial year 1990-91. 6. We have no hesitation to reject the contention of the learned counsel for the Revenue for the reason Section 194C (1) & (2) of the Act as existed at the relevant point of time had cast no obligation on the assessee-Municipal Corporation to deduct any surcharge during the relevant years when payments were made to the Contractors. Section 194C (1) & (2) of the Act as existed at that point of time may be noticed. It reads as follows:- \"194C. Payments to contractors and sub-contractors-(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and - (a) the Central Government or any State Government; or (b) any local authority; or (c) any Corporation established by or under a Central, State or Provincial Act; or (d) any Company; or (e) any co-operative Society, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to two per cent of such sum as income-tax on income comprised therein. (2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (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 labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor 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 cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as Income-tax on income comprised therein. Explanation:- For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called 'suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3)……… (4)………. (omitted intentionally as they are not relevant for the purpose of this case) 7. Questions before us are whether there is obligation to collect surcharge on TDS from contractors for the relevant period on account of the obligation cast by Clause 5 of the Finance Act, 1991 which came into force from 1st April, 1991 and whether Municipal Corporation was under any obligation to pay any interest on surcharge under Section 201 r/w. Section 201 (1A) of the Act. This Court in the case of SRIRAM REFREGERATION INDUSTRIES vs. INCOME TAX OFFICER (2014 361 ITR 119 (AP), dealing with Section 201 and 201 (1A) of the Act and considering the provisions as existing at that point of time, by following the judgment in the case of RAJAGOPAL (PV) vs. UNION OF INDIA (1998 233 ITR 678 (AP) held that Section 201 (1A) of the Act has no application in the case of short deduction. The ratio of the said judgment would squarely apply to the present case on hand even assuming that there is short deduction. We make it clear that when we say ‘even assuming’ it does not mean that at the relevant point of time there was any obligation on the Municipal Corporation to deduct surcharge as the very obligation to collect surcharge was not in existence and the same came to be introduced only with effect from 1st April, 1991 by Finance (No.2) Act, 1991. In the circumstances, we do not find any error in the order passed by the Tribunal and in that view of the matter, the question of law is answered in favour of the assessee and against the Revenue. Miscellaneous petitions, if any pending in this case shall stand closed. There shall be no order as to costs. _________________________ G. CHANDRAIAH, J ____________________________ CHALLA KODANDA RAM,J Dated: 04-03-2014 Note: LR copy to be marked. (b/o) NRG HON’BLE SRI JUSTICE G. CHANDRAIAH & HON’BLE SRI JUSTICE CHALLA KODANDA RAM RC No.174 OF 2000 ( per CKR,J ) Dated: 04-03-2014 NRG Note : LR copy to be marked *HON’BLE SRI JUSTICE G. CHANDRAIAH & HON’BLE SRI JUSTICE CHALLA KODANDA RAM +RC No.174 OF 2000 % 04-03-2014 # The Commissioner of Income-tax Visakhapatnam ….Applicant Vs. $ The Municipal Corporation, Visakhapatnam ….Respondent ! Counsel for the Applicant : Sri SR Ashok, learned Sr. Counsel ^Counsel for the Respondent : None appeared Head Note: ? Cases referred: 1. 2014 361 ITR 119 (AP) 2. 1998 233 ITR 678 (AP) "