Rajasthan Small Industries Corp. Ltd., ... vs Department Of Income Tax

1 ITA No. 284/JP/2014

The ACIT (TDS) M/s. Rajasthan Small Industries Corp. Ltd.

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR

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 Nos. 284, 285 & 286/JP/2014 fu/kZkj.k o"kZ@Assessment Years : 2007-08, 2008-09 & 2010-11

The ACIT (TDS ) cuke M/s. Rajasthan Small Jaipur Vs. Industries Corp. Ltd. Udyog Bhawan, Tilak Marg, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: JPRR 02441 F vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 4/JP/2013 fu/kZkj.k o"kZ@Assessment Year : 2009-2010

The DCIT (TDS ) cuke M/s. Rajasthan Small Jaipur Vs. Industries Corp. Ltd. Jaipur

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: JPRR 02441 F vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Shri Kailash Mangal (JCIT-DR)

fu/kZkfjrh dh vksj ls@ Assessee by : Shri Siddharth Ranka & Shri Muzaffar Iqbal, Advocate lquokbZ dh rkjh[k@ Date of Hearing : 04/03/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 10/04/2015

vkns'k@ ORDER

PER R.P. TOLANI, JM

This is a set of four appeals filed by the Revenue against two different

orders passed by ld. CIT(A)-III, Jaipur dated 25-02-2014 for the 2 ITA No. 284/JP/2014

The ACIT (TDS) M/s. Rajasthan Small Industries Corp. Ltd.

assessment year 2007-08, 2008-09 and 2010-11 and by ld. CIT(A), Alwar

dated 19-10-2012 , raising following common ground in all the appeals.

''The ld. CIT(A) has erred in law and on facts in holding that the assessee was liable to deduct tax at source @ 1% instead of 2% u/s 194C of the I.T. Act on payments made by the assessee to M/s. Max Logistics (P) Ltd. treating it as a sub- contractor instead of contractor.''

2.1 Brief facts of the case are that the assessee is a State Govt.

Undertaking incorporated with the objects to aid, counsel, assist, finance,

protect and promote the interest of small industries in state of Rajasthan.

During the course of carrying out its objects, the Commissioner of Custom

and Central Excise, Jaipur vide public notice no,. 15/95 (customs) dated

19-07-1995 appointed the assessee as the custodian of imported goods

received in containers which landed at ICD, Jodhpur until they are cleared

for home consumption or put in warehouses or trans shipped in accordance

with the provisions of the Chapter VIII of the Customs Act, 1962. The

assessee was also to work as to custodian of cargo meant for export till they

were exported. To carry out this assigned work of handling and

transportation, assessee further assigned this work for execution as per

Schedule III of the notification to M/s. Max Logistics (P) by a duly executed

agreement. Schedule III of the agreement provides that the services which

were required to be rendered by assessee were to be duly executed by Max 3 ITA No. 284/JP/2014

The ACIT (TDS) M/s. Rajasthan Small Industries Corp. Ltd.

Logistics in to the satisfaction of its contractual obligation to the custom

department. In these facts and circumstances assessee regarded Max

Logistics as its sub contractor and accordingly deducted TDS @ 1% u/s

194C for the payments made during the periods in question. The AO was of

the view that the assessee was termed as custodian of goods ''at ICD'' by

custom department, the interse relation between them does not amount to a

contract. Consequently the relationship between assessee and Max Logistic

cannot be of sub contractor, the same amounts to that of contractor which

was liable for tax @ 2% u/s 194C and not @ 1% as sub-contractor. The

assessee was accordingly held to be in default for deficit TDS of 1%. The

show cause notice issued to the assessee. A detailed reply was filed which

did not find favour of the AO who held the Payments to M/s. Max Logistics

to be as a contractor and not of a sub-contractor; liability for TDS was fixed

@ 2% u/s 201(1) and the interest was charged u/s 201(1A).

2.2 Aggrieved, the assessee went in first appeal where the ld. CIT(A)

referred to custom departments notification and various clauses of the

agreement and the Schedules appended thereto. After considering the

assessee's submissions, notification, agreements and other materials

available on record, the ld. CIT(A) held the transactions between Custom

department and assessee to be of a contractor and relations of M/s. Max 4 ITA No. 284/JP/2014

The ACIT (TDS) M/s. Rajasthan Small Industries Corp. Ltd.

Logistics (P) Ltd. with assessee as a sub-contractor liable for TDS @ 1% by

following observations.

''4.3 I have carefully considered the findings of the AO as also the submission of the appellant. It may be noted that the only dispute in these three appeals is that the appellant has made payment to M/s. Logistic (P) Ltd. and the payment made to this concern were on account of work done which was in the nature of sub-contract and accordingly the appellant has deducted TDS @ 1% . On the other hand, AO's case is that payments made to M/s. Logistic (P) Ltd. were of contact nature and TDS was to be deducted @ 2%. Accordingly, the AO has determined short deduction of TDS and assessment order charged interest u/s 201(1A) of I.T. Act and demand raised in all the three assessment years as discussed in para 4.2. The AO's case is that the assessee has made a contract with M/s. Logistic (P) Ltd. for performing incidental services at the port or on the way during the transit and that such contract was of independent nature on which TDS @ 2% was to be deducted. On the other hand , the appellant case is that the appellant was appointed custodian of imported gods received at container and landed at ICD, Jodhpur until they are cleared for home consumption or are warehoused by Deptt. of Central Excise and Customs and that for handling and transportation involved in the above appointment as per clause 1 to 5 given by the Custom Department, the assessee as per agreement with M/s. Logistic (P) Ltd. assigned the work in relation to handling of import and export operations to M/s. Logistic (P) Ltd. It was argued that the work which has been received by the assessee from Customs and Central Excise Department was only subsequently assigned in part to M/s. Logistic (P) Ltd. and that accordingly TDS @ 15% was correctly deducted as such transactions were in the nature of sub-contract. On careful consideration of all relevant facts including perusal of agreement between the assessee and Department of Central Excise and Customs as also agreement between assessee and M/s. Logistic (P) Ltd., it is noted that assessee has delegated only part of that work which was assigned to the assessee 5 ITA No. 284/JP/2014

The ACIT (TDS) M/s. Rajasthan Small Industries Corp. Ltd.

originally by the Department of Central Excise and Customs. It is noted that the assessee was declared Custodian of ICD, Jodhpur by Department Central Excise and Customs and part of the same work were subsequently delegated/ assigned by the assessee to M/s. Logistic (P) Ltd. and accordingly the transactions were definitely of sub-contract nature. It is also noted that the in respect of assessment year 2009-10, the same transactions were held to be of sub-contract nature by worthy CIT (Appeals), Alwar in appellant own case in appeal no. 498/JPr/2011-12 and accordingly it was held that the payment made to M/s. Logistic (P) Ltd. would attract TDS @ 1% applicable to the sub-contractor and allowed the appeal of the assessee. The facts of the appellant case in respect of these three appeals are also the same. Therefore, it is held that the appellant has sub-contracted a part of the function to be performed by it on behalf of Department of Customs and Central Excise as Custodian of ICD to M/s. Logistic (P) Ltd. and the TDS was rightly deducted on the rates applicable to the sub-contractor @ 1%. Therefore, there was no justification for raising of demand u/s 201(1) of the Act and the demand raised is accordingly deleted.

As regards charging of interest u/s 201(1A) of I.T. Act , it may be stated that interest is to be charged from the date of deductibility till the date of actual payment of tax in the light of decision of Hon'ble Supreme Court in the case of CIT vs. Eli Lilly & Company (I) (P) Ltd. 312 ITR 225. The AO is directed to compute the interest u/s 201(1A) of I.T. Act accordingly.''

2.3 Now the Revenue is before us against the order of the ld. CIT(A); ld.

DR contends that the survey was carried out on 07-12-2009 in the premises

of the assessee, a Rajasthan State Govt. Undertaking and it was found that

the assessee was not deducting proper TDS. According to the public notice

no. 20/89-Customs, it is clearly stated that RAJSICO has been termed as the

custodian of the goods at ICDs and the charges received by it cannot be 6 ITA No. 284/JP/2014

The ACIT (TDS) M/s. Rajasthan Small Industries Corp. Ltd.

covered under any contractual payment and consequently its arrangement

with M/s. Logistic (P) Ltd. should be considered as of a contract rather than

sub-contractor. Status of RAJSICO was that of a custodian with a liberty to

assign contract to any party to handle the works. Thus RAJSICO in its own

right could issue contracts. From the contents of the agreement dated 13-06-

2007, it is amply clear that M/s. Logistic (P) Ltd. was a contractor and not a

sub-contractor for the purpose of this agreement, the payments made in

pursuance of this contract were payments for work done in pursuance of a

contact liable for TDS u/s 194C of the I.T. Act, 1961 @ 2%. The assessee

having deducted less TDS was rightly deemed to be in default u/s 201(1) of

I.T. Act, 1961 for such short deduction of tax and interest u/s 201(1A) of the

Act shall also be charged as per law.

2.4 On the other hand, the ld. AR contends that the AO after merely

reproducing some of the clauses and without analyzing them has concluded

that M/s. Max Logistics (P) Ltd. was a contractor and not a sub-contractor.

While giving this finding, the AO failed to correctly analyze the relationship

between ICD and the assessee and consequent relationship of the assessee

with said M/s. Max Logistics (P) Ltd. The ld. AR of the assessee makes

three points in this behalf.

7 ITA No. 284/JP/2014

The ACIT (TDS) M/s. Rajasthan Small Industries Corp. Ltd.

(i) The ld. CIT(A) has correctly held that the assessee was a contractor of ICD, Jodhpur. For commercial convenience, it was termed as a custodian. Thus the assessee's relationship with ICD, Jodhpur was that of contractor. The agreement provided the assessee was eligible to outsource in full or part the contract work assigned by custom department. The assessee assigned part of the contract work allotted to it by ICD to M/s. Max Logistics (P) Ltd. As a natural corollary the interse relationship M/s. Max Logistics (P) Ltd. with the assessee was that of sub-contractor for which detailed findings have been given by the ld. CIT(A).

(2) The said M/s. Max Logistics (P) Ltd. has paid all due taxes on its income. In view thereof, Hon'ble Supreme Court judgments in the case of Hindustan Coca Cola Beverages (P) Ltd. vs. CIT, 293 ITR 226 (SC) & CIT vs. Eli Lilly & Company (I) (P) Ltd.

312 ITR 225 are fully applicable and in this situation holding the assessee in default and recovery of the demand amounts to double taxation. The same has been held to be not tenable by the Hon'ble Supreme Court in these judgments.

(iii) The assessee is a State Govt. Undertaking; the TDS is deducted after seeking the opinion from its legal Department and after due consultation. In any case, this is a case of holding bona fide belief the Max Logistics was a sub contractor. On this count also, the assessee is not liable to be treated as in default.

2.5 We have heard the rival contentions and perused the materials

available on record. The AO while holding the relationship between the 8 ITA No. 284/JP/2014

The ACIT (TDS) M/s. Rajasthan Small Industries Corp. Ltd.

Commissioner of Customs & Central Excise, Jaipur in respect of ICD,

Jodhpur with assessee is not in the nature of a contract. The ld. CIT(A) after

reading the public notification and material available on record has held the

relationship to be that of contract. In this back ground, it will be worthwhile

to refer the public notice No. 15/95 (Customs) dated 19-07-1995 which

appoints the assessee as a custodian of cargo handling till they are exported.

The important paras of this public notice are as under:-

'' ......(ii) if any imported gods meant for export are pilfered after unloading ad loading thereof in the Custom area while in the custody of The Rajasthan Small Industries Corporation Ltd. then in terms of provisions as laid down u/s 45(3) of the Customs Act, 1962, they shall be liable to pay duty on such goods as applicable..

(iii) The Rajasthan Small Industries Corporation Ltd., Jaipur as custodian, shall pay the cost recovery charges of customs officers posted at ICD, as prescribed in advance, on half year basis.

(iv) The Rajasthan Small Industries Corporation Ltd., Jaipur as Custodian shall execute a bond for Rs. 3.00 crores with surety.

(v) The Custodian shall also ensure safe transport of export goods to the port of shipment and shall be responsible for any pilferage loss, damage in transit.

(vi) The Custodian shall not charge or collect any demurrage charges after detention; certificate is issued by the Customs Department.

(vii) The Custodian shall be responsible for proper receipt, handling and storage of goods and also shall maintain proper records of all such goods.'' 9 ITA No. 284/JP/2014

The ACIT (TDS) M/s. Rajasthan Small Industries Corp. Ltd.

The Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. vs.

CIT 82 ITR 363 (SC) held that in income tax proceedings it is imperative to

ascertain the real nature of the transaction. The nature should not merely be

decided on the basis of book entries or use of common terminology. The

word 'Custodian' is used in the public notice is emphasized by ld. AO to

hold that there is no contract between custom and assessee. On reading of

the above mentioned clauses, the public notice gives a clear indication that

the assessee was in charge of handling of the cargo as sole assignee which in

the notice has been referred to as custodian. The purposive reading of terms

we hold that the assessee was acting as a contractor for the Commissioner of

Customs in this behalf. In order to efficiently discharge its contractual

obligation, the eligible assessee further assigned the work to M/s. Max

Logistic (P) Ltd. as per their agreement. In consideration of entirety of facts

and circumstances we are of the view that the M/s. Max Logistic (P) Ltd.

with assessee was that of a sub-contractor. This being so, the TDS liability

of the assessee in terms of Section 194C is exigible @ 1% which has rightly

been upheld by the ld. CIT(A). Hence, we find no infirmity in order of the

ld. CIT(A) which is upheld. Since we have held that assessee's liability for

TDS qua M/s. Max Logistic (P) Ltd. as sub-contractor liable for TDS @ 10 ITA No. 284/JP/2014

The ACIT (TDS) M/s. Rajasthan Small Industries Corp. Ltd.

1%, there is no need to go into the issue decided by the Hon'ble Supreme

Court in the cases of Hindustan Coca Cola Beverages (P) Ltd. And Elly Lily

(supra)

3.0 In the result, the appeals of the Revenue are dismissed.

Order pronounced in the open court on 10 /04/2015.

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

Tk;iqj@Jaipur fnukad@Dated:- 10th APRIL. 2015

*Mishra

vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- the ACIT / DCIT (TDS) Jaipur

2. izR;FkhZ@ The Respondent- M/s. Rajasthan Small Industries Corp. Ltd. Jaipur

3. vk;dj vk;qDr¼vihy ) @ CIT(A), Jaipur & CIT(A) Alwar

4. vk;dj vk;qDr@ CIT,

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

6. xkMZ QkbZy@ Guard File (ITA No.284/JP/2014)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@ Assistant. Registrar