2012 (5) TMI 620 - AT - Income Tax

TDS u/s 194C - non deduction of tds - Held that - For applying the provisions of section 194C(1) the contract should be between the contractor and the parties as per the list given from (a) to (j) of section 194C (1) of the IT Act as per the provisions applicable to the assessment year under appeal in which sub-clause(k) being the individual do not find mention. Thus in the assessment year under appeal the contract between the contractor and individual would not cast any obligation on the individual to deduct TDS on the payment made to the contractor. Since in this case payment is made by the assessee to M/s. Devshree Network Pvt. Ltd. for providing cable transmission therefore no other person is involved in the transaction/oral contract. Thus the assessee did not act as a sub-contractor in this case. Since the assessee has not acted as a contractor and no payment is made to the sub-contractor therefore the findings of the authorities below are based on wrong premise and assumption of certain facts which are not relevant to the matter in issue. Provisions of section 194C(1) and (2) of the IT Act would not apply to the case of the assessee. Since the expenditure has been actually paid and nothing remained payable as at the end of the A.Y. in the form of liability therefore provisions of section 40(a)(ia) are not applicable.

Summary

Issues Involved:
1. Applicability of section 194C r.w.s. 40(a)(ia) of the I.T. Act for non-deduction of TDS.
2. Status of 'individual' under section 194C prior to 01-06-2007.
3. Existence of sub-contract within the meaning of section 194C(2).
4. Applicability of section 40(a)(ia) to expenses already paid during the year.

Detailed Analysis:

1. Applicability of section 194C r.w.s. 40(a)(ia) of the I.T. Act for non-deduction of TDS:
The Assessing Officer (AO) observed that the assessee had made payments exceeding Rs. 50,000 to laborers, subcontractors, and transporters without deducting TDS, thus violating section 194C. Consequently, the AO disallowed these expenses under section 40(a)(ia). The CIT(A) ruled in favor of the assessee, stating that the individual status was not included in the list under section 194C prior to 01-06-2007, thereby negating the obligation to deduct TDS for the year under consideration.

2. Status of 'individual' under section 194C prior to 01-06-2007:
The CIT(A) highlighted that the status 'individual' was included in section 194C only from 01-06-2007, applicable from A.Y. 2008-09 onwards. Therefore, for A.Y. 2005-06, the assessee was not required to deduct TDS. The Tribunal upheld this view, referencing the case of Sri Prakash Chandra Juglubhai Lonari, where it was established that the amendment to section 194C(1)(k) effective from 01-06-2007 did not apply to the assessment year under appeal.

3. Existence of sub-contract within the meaning of section 194C(2):
The Revenue contended that payments to laborers constituted payments to subcontractors, falling within the proviso to section 194C(2). The assessee argued against the existence of any sub-contract, either oral or written. The Tribunal found no evidence of a sub-contract and ruled in favor of the assessee, dismissing the Revenue's appeal on this ground.

4. Applicability of section 40(a)(ia) to expenses already paid during the year:
The assessee contended that section 40(a)(ia) should not apply to expenses that were already paid during the year, as nothing remained payable at the end of the assessment year. The Tribunal supported this view, referencing the Special Bench decision in the case of M/s. Merilyn Shipping Transport, which held that section 40(a)(ia) applies only to expenses payable as of 31st March and not to those already paid. Consequently, this ground was allowed in favor of the assessee.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objections. The order pronounced on 17th May 2012 upheld the CIT(A)'s decision, confirming that the provisions of section 194C(1)(k) were not applicable for the assessment year under consideration and that section 40(a)(ia) did not apply to expenses already paid during the year.