2015 (7) TMI 931 - HC - Income Tax

Liability to deduct TDS for the payments made to subcontractors u/s 194C - Tribunal merely relied upon the absence of a written contract to hold that there is no relationship of a subcontractor between the assessee and M/s. SMC Infrastructure Pvt. Ltd. and M/s. Ambika Enterprises and allowed assessee s appeal - Held that - The tribunal found that the assessee is an Association of Persons(AOP). The association comprises of M/s. SMC Infrastructure Pvt. Ltd. which is a company incorporated under the Indian Companies Act, 1956 and M/s. Ambika Enterprises which is a proprietary firm. The association was for the purposes of bidding for contract of the Thane Municipal Corporation. It is the association which placed its bid and was eventually awarded the contract by the Thane Municipal Corporation on 16th November, 2004. The Tribunal noted this admitted fact in para9 of the order under challenge and found that the contract received from Thane Municipal Corporation was made over to the two entities noted above. The work was carried out by these two entities. The amount was received after the work was carried out and the same was handed over to the members to enable them to execute the contract. The association has neither kept any commission of its own nor any profit. The association comprising of these two members/partners joined together for the purposes of executing the project. It is in such circumstances, that no inference of any sub contractorship can be drawn. It is not correct to say that the Tribunal insisted on any written contract evidencing such relationship. The Tribunal noted the admitted facts and found that there is no subcontract or relationship of a subcontractor emerging from this undisputed factual position. It is in these circumstances, that it is correctly held that section 194 C(2) of the Income Tax Act has no application to the facts of the assessee s case. - Decided in favour of assessee.

Summary

Issues:
1. Tribunal's order allowing the assessee's appeal and reversing concurrent orders.
2. Whether the relationship between the assessee and other entities constitutes subcontractorship.
3. Application of section 194C of the Income Tax Act to the case.
4. Assessment of the association as an Association of Persons (AOP).
5. Interpretation of the contractual arrangement for bidding and executing the project.

Analysis:
1. The Tribunal allowed the assessee's appeal and overturned previous orders, including that of the Commissioner of Income Tax (Appeals)I, Thane. The appeal raised a substantial question of law regarding the nature of the arrangement between the parties.
2. The Tribunal found that the assessee, an Association of Persons (AOP), comprised of two entities, was not in a subcontractor relationship with M/s. SMC Infrastructure Pvt. Ltd. and M/s. Ambika Enterprises. The Tribunal highlighted that the association bid for and was awarded a contract by the Thane Municipal Corporation, which was then executed by the two entities without any commission or profit retained by the association.
3. The appellant argued that the absence of a written contract could facilitate a violation of section 194C of the Income Tax Act, leading to non-deduction of tax at source for payments to subcontractors. However, the Tribunal, based on admitted facts, concluded that section 194C(2) did not apply to the case due to the lack of a subcontractor relationship between the parties.
4. The Tribunal's assessment of the association as an AOP was based on the joint effort of the two members/partners to execute the project without retaining any profits individually. This assessment influenced the determination of the subcontractor relationship and the application of tax deduction provisions.
5. Ultimately, the High Court upheld the Tribunal's decision, stating that the view taken did not suffer from any serious legal infirmity or raise a substantial question of law. The appeal was dismissed as lacking merit, affirming the Tribunal's findings regarding the contractual arrangement and the absence of a subcontractor relationship.