District E-Governance Society, Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 933/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2009-10

The I.T.O. cuke M/s District E-Governance Ward 3(2), Jaipur Vs. Society, Collectorate Bhawan, Banipark, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAALD 0455 A vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Shri Rajesh Ojha (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.)

lquokbZ dh rkjh[k@ Date of Hearing : 31/12/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 27/03/2015

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

This is an appeal filed by the department against the order dated

01/10/2012 passed by the learned CIT(A)-I, Jaipur for A.Y. 2009-10.

The effective grounds of appeal are as under:-

"Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) is justified in:

1. deleting the addition of Rs. 10,74,207/- made by the A.O. on account of difference between the amount found in Form No. 16A and Form No. 26AS.

2 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

2. deleting the addition of Rs. 37,86,609/- made by the A.O. U/s 40(a)(a) on account of non deduction of tax at source on the services charges paid."

2. The first ground of appeal is against deleting the addition of Rs.

10,74,207/- made by the Assessing Officer on account of difference

between the amount found in Form No. 16A and Form No. 26AS. The

assessee is in providing all general facilities. The assessee filed its

return of income on 30/09/2009 declaring loss of Rs. 1,54,763/-. This

case was scrutinized U/s 143(3) of the Income Tax Act, 1961 (in short

the Act) by the Assessing Officer. The assessee society is registered

with Registrar of Societies, Jaipur and engaged in providing services of

depositing electricity bills, telephone bills, PHED bills etc. through Local

Service Providers (LSP's). During the year under consideration, the

assessee society has received service charges of Rs. 1,60,67,894/- and

paid service charges of Rs. 1,39,42,771/- to local service provider. The

assessee society is not registered U/s 12AA of the Act. The learned

Assessing Officer observed that it is found that as per Form No. 26AS,

an amount of Rs. 2,27,47,472/- had been credited in assessee's account

but the assessee has shown only Rs. 1,60,67,849/- in the P&L account.

The Assessing Officer gave reasonable opportunity of being heard on

this issue, which was replied by the assessee vide letter dated 3 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

28/11/2011. It is submitted that the assessee has followed system of

accounting and accordingly, it disclosed the receipt as per the bank

statement. Therefore, considering the accounting system followed by

the assessee, the difference of Rs. 66,79,623/- should not be added in

the income of the assessee. The learned Assessing Officer also issued

notice U/s 133(6) of the Act to M/s Jaipur Vidyut Vitran Nigam Limited

(JVVNL) to explain the difference shown in the 26AS and form No. 16A.

It was explained by M/s JVVNL that this difference was on account of

typing error and payment shown at serial No. 33 and 43 of 26AS were

actual Rs. 6,79,597/- and Rs. 5,57,281/- respectively in place of Rs.

34,50,000/- and 55,72,821/- shown in the form 26AS. M/s JVVNL had

admitted that total payment of Rs. 87,59,345/- had been made to the

assessee during the F.Y. year under consideration. Since the assessee

had shown receipt of Rs. 76,85,138/- as against the actual receipt of

Rs. 87,59,345/-. The learned Assessing Officer again gave reasonable

opportunity of being heard to reconcile the differences, which was

responded by the assessee vide letter dated 23/12/2011. After

considering the assessee's reply, the difference of Rs. 10,74,207/- was

added back in the income of the assessee.

4 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

3. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the learned CIT(A), who had allowed

the appeal by observing as under:-

"4.3 I have carefully perused the order of the A.O. and the submissions of the A.R.. On perusal of the evidence filed it is seen that it is possible to verify the submissions of the A.R. that the payment of Rs. 5,16,925/- was made on 01/04/2008 and Rs. 5,57,282/- made in May, 2008 was reflected by JVVNL in the TDS certificate for A.Y. 2008-09 and was accounted for by the assessee in that A.Y.. Therefore, the amount cannot again be taxed during this A.Y.. Therefore, the addition of Rs. 10,47,207/- is deleted."

4. Now the Revenue is in appeal before us. The learned D.R.

vehemently supported the order of the Assessing Officer.

5. At the outset, the learned A.R. for the assessee submitted as

under:-

1. The assessee has accounted for the receipt from JVVNL towards the service charges on the basis of the TDS certificate issued by it. During the year JVVNL has issued the TDS certificate specifying that it has deducted tax at source on the amount of Rs. 76,85,138/- paid by it to the assessee. Accordingly, assessee has accounted for the income of Rs. 76,85,138/- in respect of receipt of service charges from JVVNL.

5 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

2. In course of assessment proceedings when the A.O. sought the details of payment made by JVVNL (JCC) to the assessee they furnished the month wise detail of payment made during the year at Rs. 87,59,345/-. On reconciliation of the amount mentioned in this letter vis a vis the amount mentioned in TDS certificate, it may be noted that all the payment mentioned in the letter matches with the amount mentioned in the TDS certificate except for the payment of Rs. 5,16,925/- made in April 2008 and Rs. 5,57,282/-

made in May, 2008 aggregating to Rs. 10,74,207. In fact these two amounts were reflected by JVVNL in the TDS certificate for assessment year 2008-09 and accordingly accounted for by the assessee in that year.

3. From the above it can be noted that amount of Rs.

10,74,207/- is already assessed in assessment year 2008- 09 and therefore the same cannot be again assessed in the year under consideration. Therefore, the addition of Rs. 10,74,207/- made by the A.O. is unjustified and uncalled for.

4. Without prejudice to the above, assessee is authorized to retain 10% as its charges for each category of services from the service charges. Therefore, only 10% of Rs. 10,74,207/- i.e. Rs. 1,07,420/- is its income and not the entire amount of Rs. 10,74,207."

6. We have heard the rival contentions of both the parties and

perused the material on record. The revenue has not disputed that the 6 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

payment of Rs. 5,16,925/- made in April, 2008 and Rs. 5,57,282/- made

in May, 2008 aggregating to Rs. 10,74,207/- and both the amounts

were reflected by JVVNL in the TDS certificate for A.Y. 2008-09 and

accordingly, the assessee has accounted for these entries in that year

i.e. A.Y. 2008-09. Therefore, we upheld the order of the learned

CIT(A).

7. The second ground of appeal is against deleting the addition of

Rs. 37,86,609/- made by the Assessing Officer U/s 40 (a)(ia) of the Act

on account of non deduction of tax at source on the services charges

paid. The learned Assessing Officer observed that the assessee society

had paid service charges of Rs. 1,39,42,771/- to local service provider

for the services rendered. It is found that the assessee had not

deducted TDS on Rs. 37,86,609/- made to M/s Easy Bills Ltd.. The

Assessing Officer gave reasonable opportunity of being heard on this

issue vide letter dated 25/11/2011 and 28/11/2011. It was submitted by

the assessee that the assessee is following cash system of accounting,

which means any receipt or payment is to be accounted for only on

actual receipt or payment basis. The assessee had debited the expenses

on payment basis in P&L account. The learned Assessing Officer held

that the assessee has not added back this amount in the computation 7 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

of income after deviating these expenses in the P&L account. Further as

per the provisions of Section 40(a)(ia) of the Act, the word "payable",

which means due to the assessee, which includes paid as well as

outstanding. When contract amount debited to the P&L account, the

provisions of Section 194 is squarely applicable. If no TDS has been

made by the assessee, it is a default U/s 194C read with Section

40(a)(ia) of the Act. The learned Assessing Officer made addition of Rs.

37,86,609/- U/s 40(a)(ia) of the Act.

8. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the learned CIT(A), who had allowed

the appeal by observing as under:-

"I have carefully perused the order of the A.O. and the submissions of the A.R. and I concur with the submissions of the A.R. given the facts of the case namely:-

1. The income of the assessee society is assessable under the head of income from other sources and so provisions of section 40(a)(ia) are not applicable to it.

2. The matter in A.Y. 2007-08 came up for adjudication before the learned CIT(A) and subsequently the Hon'ble ITAT Jaipur, who vide its order ITA No. 609/JP/2010 dated 28/04/2011 has held that the assessee society is not making any payment but is only a conduit to making payments to LSPs on behalf of the government 8 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

departments and therefore the provisions of section 194C are not applicable to it. With these observations, it deleted the entire addition of Rs. 78,74,242/- U/s 40(a)(ia).

The facts of the case of the appellant are covered by the finding of the Hon'ble ITAT in its case for A.Y. 2007-08 vide its order supra in its favour. Since the Assessing Officer has not brought on record any argument or evidence to controvert the finding of the Hon'ble ITAT on the same facts in the case of the assessee in A.Y. 2007-08 the matter is covered by this finding. The amount of Rs. 37,86,609/- disallowed u/s 40(a)(ia) for default of provisions u/s 194C is therefore deleted."

9. Now the Revenue is in appeal before us. The learned DR

supported the order of the Assessing Officer.

10. At the outset, the learned A.R. for the assessee submitted as

under:-

1. It may be noted that the assessee society was constituted to prove any extend facilities of Information Technology and Communication in the rural and urban areas for public at large without any profit motive. It is acting only as a conduit between various Government departments and the local service providers for facilitating the payment of the bills by public at large. From the agreement, it can be noted that LSP is actually engaged in collection of bills and 9 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

remittance of payment to the Government Department, only the payment of service charges by Government Departments to LSP is channelized through assessee society. From the agreement it is clear that service charges per transaction paid by the department to assessee society is a specific amount per transaction and the same amount is payable by the assessee society to LSP. Thus assessee society is not doing any business activity. The basic ingredient to constitute an activity as a business activity is that it is with an object to earn profit. Risk, uncertainty, foresightness to visualize the imponderables and capacity to overcome the unforeseen hurdles are the essential requisite of business activity. These factors are not there in the present case. Even the A.O. has not specified the head of the income under which he has assessed the income.

The assessee only retain commission/share/service charges of 10% from the bills of LSP to meet its administrative cost which it receives from the department. The surplus of the society is therefore assessable only under the head income from other sources and not under the head income from business. Once income is assessable under the head income from other sources, section 40(a)(ia) is not applicable and consequently, the disallowance made by the A.O. is against law.

2. It is also to be noted that on the basis of number of bills collected by the LSP, they raised bill on the assessee at the specific rate per transaction as per the agreement. From 10 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

this 10% is deducted on account of commission/share/ service charges and the balance amount is claimed and paid by the assessee to LSP. On the basis of this bill, the assessee raises a bill on the concerned department at the same rate per transaction. Thus it can be noted that the assessee is only facilitating the payment of service charges after verification of claim of LSP on the Government department for service charges. For this it receives a margin of 10% to meet its administrative cost. Thus it is not a case where the assessee receives any service charges independently of his own and makes payment to the LSP independently of what it receives from the Government Department. The entire process adopted for making payment of service charges to LSP through the assessee society is only to have a proper verification and control over the activities of the LSP. Thus neither the service charges received from the department is income of the assessee nor the payment made to LSP is an expenditure of the assessee. The income of the assessee is only to the extent of 10% which is retained by it out of the reimbursement of service charges bill of LSP claimed from the department. Thus assessee has not incurred any expenditure of payment of service charges and therefore question of disallowance u/s 40(a)(ia) do not arise.

3. Similar issue was considered by CIT(A) in assessment year 2007-08 where the disallowance made u/s 40(a)(ia) was deleted by giving the following findings.

11 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

"It appears that the LSP collects bills of various departments and make remittance to the Govt. departments. However, while reimbursing the service charges the govt. department uses the society as a conduit between Govt. departments & LSPs. The LSPs raise bills at a fix price and Govt. departments makes the payment on the very same rate to the appellant society so that it can remit the amount to the LSPs after deducting its 10% commission to meet its administrative expenditure. The society is thus a conduit between Govt. departments & LSPs and is not engaged in any profit making business activity. After retaining its commission of l0% the appellant makes payment to LSPs. The society is not engaged in any business activity & therefore income which is in the form of surplus cannot be taxed under the head "business income". After meeting administrative expenditure the balance of the commission received @ 10% is surplus fund which is taxable in the hands of the society as the society is not registered u/s 12AA. As the only income earned by the appellant is taxable under the head income from other sources, provisions of section 40(a) (ia) will not be applicable in the present case. Further section 40(a)(ia) can be applicable only in case of payment made u/s l94C for carrying out any work. The appellant society on its own is not making payment to LSPs but what it receives from the Govt. department is passed on to the LSPs after retaining a part payment as its commission. The appellant is only a conduit to make payment to LSPs on behalf of Govt. departments & therefore provisions of section 194C are not applicable. There is no payment for services rendered to the appellant society & society does not make payment on its own, it is not a payment covered by 12 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

provisions of section 194C. The provisions of section 194C therefore will not be applicable. The AO, is therefore directed to delete the entire addition of Rs. 78,74,242/- made u/s 40(a)(ia).

The said finding of CIT(A) was upheld by the Hon'ble ITAT in ITA No. 609/JP/10 dated 28/04/2011.

4. Of course, the assessee as a measure of abundant precaution has deducted the tax at source on the payment made by it to local service provider, but such payment is not for any services rendered by the LSP to the assessee but only on behalf and behest of the government department on which provision of deduction of tax at source is not applicable. Therefore non deduction of tax at source on the bills of M/s Easy Bills Ltd. do not call for any disallowance u/s 40(a)(ia).

5. So far as the contention of AO that assessee has maintained the accounts on cash basis and therefore liability provided in respect of bills of M/s Easy Bills Ltd. is not allowable is without considering the fact that assessee is entitled to only l0% of such bill as its service charges. This has already been considered by assessee when the gross receipt is included in income. lf the deduction in respect of unpaid bills is not considered (whether the accounts are maintained on cash basis or accrual basis) it will amount to taxing the receipt and not income which is against law as it would violate the matching concept of accounting. Therefore, disallowance of Rs. 37,86,609/- in 13 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

respect of bills of M/s Easy Bills Ltd. is otherwise not called for.

In view of above, the disallowance is uncalled for and the same be deleted.

11. We have heard the rival contentions of both the parties and

perused the material available on the record. The assessee society has

been constituted to provide and extend facilities of information

technology and communication in the rural and urban areas for public

at large without any profit motive. It is acting only as a conduit between

various Government departments and the local service providers for

facilitating the payment of the bills by public at large. It is fact that the

local service providers was paid service charges by the government

department through the assessee to channelize the transaction and

verify the payment made to LSP by the government. The assessee

society is not doing any business activity as basic ingredient of business

activity are not found in these transactions. The LSP raised the bills on

the assessee at the specific rate per transaction as per agreement. The

assessee deducted 10% on account of commission/share/service

charges and the balance amount is claimed and paid by the assessee to

LSP. The assessee raised demand bill on the basis of bill received fro

LSP. The assessee only received 10% margin out of bill raised by the 14 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

LSP for administrative cost. The government made payment to LSP for

services rendered through the assessee to verify and control the activity

of LSP, therefore, these payments are principal to principal against the

services rendered by the LSP to government. Any payment made by

the government to any person is not liable to be deducted TDS. The

identical issue in A.Y. 2007-08 has also been decided by the learned

CIT in favour of the assessee by following that the appellant is only a

conduit to make payment to LSP on behalf of the government and

therefore provisions of Section 194C of the Act are not applicable.

Therefore, we upheld the order of the learned CIT(A).

12. In the result, the revenue's appeal is dismissed. Order pronounced in the open court on 27/03/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated 27th March, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the Order forwarded to:

1. vihykFkhZ@The Appellant- The I.T.O., Ward 3(2), Jaipur.

2. izR;FkhZ@ The Respondent- M/s District E-Governance Society, Jaipur.

15 ITA 933/JP/2012_ ITO Vs M/s District E-Governance Society

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr@ vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 933/JP/2012).

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar