2014 (4) TMI 234 - HC - Income Tax

Deletion made u/s 40(a)(ia) of the Act Amount paid to sub-contractors TDS not deducted u/s 194C(2) of the Act - Whether the Tribunal was right in law in deleting the addition made u/s 40(a)(ia) of the Act being the amount paid to sub-contractors without deducting the tax at source as required u/s 194C(2) of the Act Held that - The CIT(A) view was upheld by the Tribunal that the functions performed by the society had no profit motive and were more in the nature of a welfare activity performed by it - there was no element of works contract in terms of the provisions of section 194C in the activities performed by the society - the assessee had no profit motive and the activity of the society was more of a welfare activity - the reasoning adopted by the Tribunal is just and reasonable - it is not possible to state that there is any infirmity in the order of the Tribunal as there was no question of law arises for consideration Decided against Revenue.

Summary

Issues:
Challenge to order under section 260A of the Income-tax Act regarding deletion of addition made under section 40(a)(ia) for non-deduction of tax at source.

Analysis:
The case involved an appeal under section 260A of the Income-tax Act challenging the deletion of an addition made under section 40(a)(ia) for not deducting tax at source. The appellant-Revenue contested the order passed by the Income-tax Appellate Tribunal, questioning the deletion of Rs. 2,57,36,253 for payments to sub-contractors without deducting tax at source as required under section 194C(2) of the Act. The respondent-assessee, a cooperative society, declared total income as nil for the assessment year 2005-2006. The Assessing Officer disallowed the sum by invoking section 40(a)(ia) of the Act, arguing that the society should have deducted TDS on payments made to farmers. The Commissioner (Appeals) and the Tribunal both ruled in favor of the assessee, emphasizing the society's non-profit motive and welfare activities. The Tribunal upheld the findings, concluding that the society's actions were welfare-oriented, devoid of profit motive, and facilitated smooth operations between farmers and the ONGC.

The appellant contended that the Tribunal's decision was based on extraneous factors and deserved to be set aside. However, the facts revealed that the society was formed to coordinate matters between farmers and the ONGC, maintaining individual accounts for each farmer. The society received lump sum payments from the ONGC, deducted TDS, and then distributed the amounts to farmers after deducting administrative expenses. The Assessing Officer viewed the society as a sub-contractor, requiring TDS deduction under sections 40(a)(ia) and 194C. The Commissioner (Appeals) and the Tribunal disagreed, highlighting the society's role as a non-profit entity facilitating income distribution without engaging in works contracts. The Tribunal's decision was based on evidence and upheld the Commissioner's findings, emphasizing the society's welfare activities and lack of profit motive.

The High Court, upon reviewing the Tribunal's reasoning and the evidence, found no infirmity in the decision. The court agreed with the Tribunal's conclusion that the society's actions were welfare-oriented, justifying the deletion of the addition under section 40(a)(ia). The court dismissed the appeal, stating that no substantial question of law arose for interference. The judgment affirmed the Tribunal's findings, emphasizing the society's non-profit nature and welfare activities, ultimately upholding the deletion of the addition made by the Assessing Officer.