Dey Engineering Works., Kolkata vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA [Before Shri Mahavir Singh, JM & Shri Shamim Yahya, AM]

I.T.A No. 1891/Kol/2012 Assessment Year: 2006-07 Income-tax Officer, Wd-48(4), Kolkata. Vs. M/s. Dey Engineering (PAN: AAEFD3328A) (Appellant) (Respondent)

Date of hearing: 25.02.2015 Date of pronouncement: 27.02.2015

For the Appellant: Shri Sanjay, ACIT For the Respondent: Shri Debabrata Ghosh, Advocate

ORDER Per Shri Mahavir Singh, JM :

This appeal by revenue is arising out of order of CIT(A)-XXX, Kolkata in Appeal No. 122/CIT(A)-XXX/Wd-48(4)/2010-11 dated 30.08.2012. The assessment was framed by ITO, Ward-48(4), Kolkata u/s. 254/251/143(3) of the Income-tax Act, 1961 (hereinafter referred to as the "Act" ) for AY 2006-07 vide his order dated 24.09.2010.

2. Only issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance made by AO being processing charges paid without deduction of TDS u/s. 194C of the act thereby invoking the provisions of section 40(a)(ia) of the Act. For this, revenue has raised following two grounds:

"1. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in deleting the disallowance of Rs.13,52,052/- made u/s. 40(a)(ia) on account of processing charges allowed without TDS.

2.That on the facts and in the circumstances of the case, Ld. CIT(A), while deleting the disallowance as mentioned in ground No. 1 as above, failed to appreciate the CBDT's circular No. 681 dated 08.03.1994."

3. We have heard rival submissions and gone through facts and circumstances of the case. Brief facts are that the assessee claimed before the AO that labour charges paid to parties are not coming within the ambit of contract, hence he relied on the CBDT Circular No. 681 dated 08.03.1994 and the contract for processing of goods, to the 2 ITA No.1891/K/2012 Dey Engineering, AY 2006-07

parties, supplied by the assessee. The AO noted that the assessee admitted that the processing of work was placed to various parties orally but ownership of material remained with them, hence, no TDS was deducted u/s. 194C of the Act. According to the assessee, there was no contract but the AO made disallowance for violation of the provisions of section 40(a)(ia) of the Act as the assessee failed to deduct TDS u/s. 194C of the Act by observing as under:

"In view of the same the fact that the assessee firm has violated the provision of section 194C of the Income tax Act, 1961 by not deducting statutory tax at source from payment for supply of labour job to 7 (seven) parties cannot be ignored. The said 7 (seven) parties to whom it had paid by crossing the monetary limit of Rs.50,000/- during the year are as under:

Sl. No. Name of the party Amount paid 1. M/s. B. K. Engineering Rs. 53,721/- 2. M/s. Ma Kheaptaswari Enterprise Rs. 54,135/- 3. M/s. Mahaprabhu Enterprise Rs. 69,423/- 4. M/s. Pachal forging & Enterprise Rs. 77,910/- 5. M/s. Ramkrishna Engineering Works Rs. 1,35,335/- 6. M/s. Ma Kali Engineering Works Rs. 1,63,691/- 7. M/s. Sarda Engineering Works Rs. 7,97,637/- Total : Rs.13,52,052

Aggrieved, assessee preferred appeal before CIT(A), who accepted the plea of the assessee that there is no contract between the parties in view of the fact that the material was supplied by the assessee. He observed in para 3.1 as under:

" It has been clarified by the Appellant that there was no contract between the appellant and the parties to whom payment was made for supply of labour and the payment was not made to any contractor as describe in Section 194C.There is also nothing on record to suggest that these parties were taking on whole or part of the contractual obligation and responsibility of the Appellant in respect of any work assigned to it by its client. The A.O. has not brought any material facts or evidence on record to show that there was a formal contract between the Appellant and the suppliers within meaning of section 194C. Therefore, there was no contractual obligation in the nature of a sub-contract or by placing such obligation on these parties for manufacture and supply of material by the Appellant. It is therefore clear that the payments in dispute are not covered u/s.194C on the basis of which disallowance can be made u/s. 40(a)(ia). Accordingly, in view of the totality of circumstances and the decision of the Hon'ble High Courts cited above, it is held that no disallowance of the same could be made u/s. 40(a)(ia) and the disallowance made by the A.O. of Rs.13,52,052/- is deleted."

We find that these processing charges are labour payments to various parties as noted by AO and reproduced by us above. The labour charges/processing charges paid to 3 ITA No.1891/K/2012 Dey Engineering, AY 2006-07

various parties are exceeding the prescribed limit as prescribed u/s. 194C(5) of the Act. The assessee admitted that he has paid processing charges to the above stated parties exceeding the prescribed limit but according to him, there is no contract between them. In view of the above facts, we find that the issue is squarely covered in favour of revenue and against the assessee by the decision of this coordinate Bench in the case of DCIT Vs. Kamal Mukherjee & Co. (Shipping) (P) Ltd. ITA No. 199/Kol/2010, wherein it is held as under:

(From H ea d not es)

"...... .Und ou bt edly , t hese de cisi on s do in dica te t hat th er e is a wor kman e m plo yer r el atio ns hi p betw een t he d ock wor kers and the ste v edor e s li ke a s ses see when the y emp loy tho se wor k ers , b ut be t ha t as it may , the fac t re ma ins tha t the ass e ssee ha s m ade p a ym e nts t o the CD LB for sup ply o f la b our , ev en w hen t his l abo ur m a y b e tre at ed as emp loye d by t h e ass esse e for a ll p r act ical p urpo ses, t he pro visi on s o f se ctio n 19 4 C ar e cl e arl y at trac t ed. In s uch a sit ua ti on, i .e. wh e n la b our h ired b y the a ss es see thr ough CD LB is c o nsi der e d to be in ass esse e's emp loym en t, t he pa y ment s m ade t o C DLB ca nno t b e trea t ed as p ayme nts for any wo rk, but nev e rth eles s th e se p ayme n ts cou ld st ill b e co v ered by th e pr ov isio ns of sect ion 1 94C bec ause the s e are pay ment s ma d e for supp ly o f la b our whi ch are sp eci f ical l y cov e red by s ecti on 194 C(1 ) . C DL B is an ag en t of th e stev e dor es lik e t he ass e sse e i n the sen se tha t t he labo ur is re c ru it ed by t he a ss es see thr ough CDL B , bu t wh en t his fa ct does not aff ect the nat ure of pa ymen t by th e as ses s ee to the C D LB wh ic h is adm itte dl y in th e na tu re o f p a yme n t f or s uppl y of labo ur. The r ea so ning ad op te d b y the C o mmis sio n er ( Ap peal s), tho ugh s omew h at im pres sive at fir st gl ance , is fal laci ou s. T her e is no c ause a nd eff e ct r elat io ns hip bet ween w ork e rs as sig n ed by t he CD LB hav ing e mplo yer wor kman re lat ion s hip w i th t he a ss e sse e, an d t he p aym e nts bei ng ma de b y t he ass es se e to C DLB bei ng no t i n the nat ure of ' paym ent fo r supp ly o f la bour '".

4. Sin ce the fa cts a nd c ircu ms ta n ces are exac tly ide ntic al , wh at wa s b efor e us in K amal M ukh j erje e & Co. (Sh ippi ng ) (P. ) Ltd . (su pra) and a lso tha t in the c as e o f Smt . J. Ram a o f Ho n' ble Ka rnat ak a High C ou rt ( supr a) , res pect fu ll y fol l owi ng th e sa m e, w e a re of the v iew t hat eve n o ral co n tra ct is s uf fici en t an d a dmit te dl y the ass esse e h as tak en the du mper s on hir e a nd he ha s p aid cha rges for the sam e . Res pec t full y fo llow ing the s ame , we con firm the d i sall o wan ce made by the As s ess in g Off i cer and reve rse the ord e r of CIT( App e a ls) . Ho weve r , as reg ard to a lter nat i ve ar gu me nts ma de by ld . cou nse l fo r the ass esse e re g ard in g a ppli c abi lit y o f t he d ecis io n o f IT AT, Spe cial B en ch, V ish a khap a tna m in the ca se of Merilyn Shipping & Transports Vs. Addl. CIT (Visakhapatnam) (SB) reported in (2012) 136 ITD 23 (SB), wh ere in it is h eld that th e dis allo wa nc e w il l be re st ri cted to th e amo u nt p a yabl e at the end of y ea r and not o n th e am o unt alr e ady pa id dur ing 4 ITA No.1891/K/2012 Dey Engineering, AY 2006-07

the rele v ant yea r. Ld. counsel for the assessee before us stated that this payment was made within the due date and nothing remains payable and he relied on the decision of Special Bench of this Tribunal in the case of Merilyn Shipping & Transports Vs. Addl. CIT (Visakhapatnam) (SB) reported in (2012) 136 ITD 23 (SB), wherein it is held that the TDS is to be deducted only in relation to payments which remains payable at the end of the year i.e. 31st March of the relevant financial year. It was pointed out to Ld. counsel that the operation of the order of Special Bench of this Tribunal in the case of Merilyn Shipping & Transports (Supra), is stayed by Hon'ble Andhra Pradesh High Court in I.T.T.A.M.P. No.908 of 2012 in I.T.T.A. No.384 of 2012 wherein Hon'ble High Court observed, "Interim suspension. Notice." Vide dated 8th October, 2012.

5. On this, the Ld. counsel for the assessee argued that effect of the order staying a pending appeal before any High Court does not amount to any declaration of law but is only binding upon the parties to that proceedings and such interim order does not destroy the binding effect of the principals as laid down in the order as a precedent because the interim order had no occasion to lay down any proposition of law. For this proposition, he relied on the case law of Hon'ble Calcutta High Court in the case of Pijush Kanti Chowdhury Vs. State of West Bengal & Ors (2007) 2 CALLT 577 dated 14th May, 2007 wherein, at para 10 and 13, it has been held as under:

"10. After hearing the learned counsel for the parties and after going through the aforesaid provision we find that the Supreme Court by those interim orders has no doubt stayed the operation of the order of the Division Bench of this court by directing the parties to maintain status quo and at the same time, even restrained the State from inducting third parties on the lands which were the subject-matters before the Apex Court. Such interim order is binding upon the parties to the proceedings but the law is equally settled that by mere passing of an interim order staying the operation of a judgment with certain further conditions, the existence of the said judgment is not wiped out and at the same time, for such interim orders inter parties, the authority of a decision as a precedent is never undermined. Unless a decision is set aside by the Superior Court, the said decision remains binding as a precedent though may not be binding upon the parties to the proceedings where the Superior Court has granted interim order. Moreover, once a provision has been declared ultra vires the Constitution of India, the State cannot invoke the said ultra vires proceeding against the citizens of the country simply because an interim order of stay of operation order declaring the provision as ultra vires has been passed in an appeal against such order. The object of granting interim order iš to see that the relief claimed in the appeal may not become inappropriate or the appeal does not become infructuous for not granting such interim order; but by mere grant of interim stay, the effect of a binding precedent is not destabilized. Over and above, the interim orders of the stay granted by the Supreme Court clearly indicate that the said Court never intended that notwithstanding the decision of the High Court declaring a part of the provisions of vesting as ultra vires the State would nevertheless be free to proceed with the process of vesting during the pendency o the proceedings before the Supreme Court and that is why status 5 ITA No.1891/K/2012 Dey Engineering, AY 2006-07

quo as regards possession has been maintained and even, the State has been restrained from creating any third party interest in the lands in question.

13. Therefore, the effect of the order of stay in a pending appeal before the Apex Court does not amount to any declaration of law but is only binding upon the parties to the said proceedings and at the same time, such interim order does not destroy the binding effect of the judgment of the High Court as a precedent because while granting the interim order, the Apex Court had no occasion to lay down any proposition of law inconsistent with the one declared by the High Court which is impugned."

6. Even, Hon'ble Supreme Court in the case Shree Chamund Mopeds Ltd. vs. Church of South India Trust Association, Madras, AIR 1992 SC 1439, 1444 has analysed the difference between "stay of operation" of an order and "quashing" of an order" and held that 'stay of order' of an appellate authority / court by a higher court means that the order passed by the appellate authority / lower court still continues to exist in law inspite of the 'stay' and its existence is not destroyed. But where the order of the appellate / lower court is quashed and the matter is remanded back, it means that the appeal disposed of by the said order of the appellate authority/lower court would be restored and it can be said to be pending before the said authority/lower court.

7. In view of the above, particularly the decision of the Hon'ble Jurisdictional High court in the case of Pijush Kanti Chowdhury (supra), as also in obedience to decision of the Hon'ble Supreme Court in the case of Shree Chamund Mopeds Ltd. (supra), we are of the view that the decision of the special bench of this tribunal in the case of Merilyn Shipping & Transports (supra) still holds ground and accordingly, TDS provisions will apply, for the purpose of invocation of the provisions of section 40(a)(ia) of the Act, only on the amounts remained payable at the end of financial year and not on the paid amounts. Hence, we direct the AO to recompute the disallowance accordingly. Appeal of assessee is partly allowed for statistical purposes."

As the issue is covered against the assessee and in favour of revenue and when this was confronted, Ld. counsel for assessee could not argue on this point. Hence, this issue of revenue's appeal is allowed.

4. In the result, appeal of revenue is allowed.

5. Order is pronounced in the open court on 27.02.2015 Sd/- Sd/-

(Shamim Yahya) (Mahavir Singh) Accountant Member Judicial Member

Dated :27th February, 2015 Jd.(Sr.P.S.) 6 ITA No.1891/K/2012 Dey Engineering, AY 2006-07

Copy of the order forwarded to:

1. APPELLANT - ITO, Ward-48(4), Kolkata.

2 Respondent - M/s. Dey Engineering, 69, Ichapur Road, Kadamtala, Howrah-711101 3. The CIT(A), Kolkata 4. CIT Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.