2015 (10) TMI 2320 - AT - Income Tax

TDS u/s 194C - TDS on the amounts paid to the sanitation contractors - AO held that the TDS was deductible on such payments and for failure to deduct the TDS, assessee is in assessee in default u/s 201(1) and is also liable to pay interest u/s 201(1A) - whether the SHGs can be called as contractors - Held that - The GHMC has engaged and issued the poceedings in favour of the SHGs by lots and work has been allotted per unit by fixing the wages per person and also specifying the number of workers to be engaged for each unit and per shift. The working hours of the workers as well as the shifts are also specified in the notification. From the bills paid to the SHGs also, it is seen that the payment is made on the basis of number of mandays and wages per day and is not a fixed amount per month. Thus, it is clear that the allotment of work by the assessee to the SHGs is not by way of contract but is engagement of workers for a fixed period. The workers are being paid as per the agreed terms and conditions and the aggregate amount is paid to the group and not to any particular person. Therefore, as rightly held by the CIT (A), there is no contractor contractee relationship but is more in the nature of employee employer relationship as the assessee is also making contributions to the EPF and ESI and as rightly pointed out by the ld CIT (A), the payments made to an individual is not exceeding the prescribed limit u/s 192 of the I.T. Act, the TDS provisions are not applicable to the facts of the case before us - Decided in favour of assessee.

Summary

Issues:
Revenue appeals against deletion of demand raised by AO under sections 201 and 201(1A) of the IT Act for AYs 2009-10 and 2010-11.

Analysis:
1. The assessee, a Municipal Corporation, faced a demand raised by the AO for not deducting TDS on payments to sanitation contractors following a circular by the GHMC Municipal Commissioner. The AO held the TDS should be on gross amounts, not just profit margins. The CIT (A) later allowed the appeal, stating the payments were akin to wages, not subject to section 194C, but rather section 192 of the Act, pertaining to employer-employee relationships.

2. The Revenue contended that payments to self-help groups (SHGs) for sanitation work were contract amounts liable for TDS under section 194C. The AO treated the assessee as "assessee in default" for failure to deduct TDS. The assessee argued the SHGs were not contractors but groups of workers paid consolidated wages, supported by documents showing wages and EPF/ESI contributions, similar to a case in Mahaboobnagar where the CIT (A) granted relief.

3. The Tribunal analyzed whether the SHGs could be considered contractors, finding the engagement to be more of an employer-employee relationship. The workers were paid per terms agreed upon, with payments made to the group collectively, not individual contractors. As the payments did not exceed limits under section 192 of the IT Act, TDS provisions were deemed inapplicable. The Tribunal upheld the CIT (A) decision, dismissing the Revenue appeals.

In conclusion, the Tribunal ruled in favor of the assessee, dismissing the Revenue appeals and upholding the CIT (A) decision based on the nature of the relationship between the Municipal Corporation and the workers from self-help groups engaged for sanitation work.