2015 (10) TMI 2321 - AT - Income Tax

Penalties u/s 271C - Non deduction of TDS u/s 194C from the payments made to the contract workers - Held that - the issue relating to the assessee s liability to deduct tax at source from the similar payments made to contract labourers had come up for consideration before the Tribunal in assessee s own case for the earlier years and the same was decided by the Tribunal in favour of the assessee concuding 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. Cancelling the penalties imposed u/s 271C thus is duly approved by the Tribunal holding that the assessees were not liable to deduct tax at source from the payments made to contract labourers who formed Self Help Groups. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271C of the Income Tax Act, 1961 for failure to deduct tax at source from payments made to contract workers by two different zones of a Municipal Corporation.

Analysis:
The appeals filed by the Revenue challenged the cancellation of penalties imposed by the Assessing Officer (AO) under section 271C of the Income Tax Act, 1961, by the ld CIT (A)-II Hyderabad. The assessees, two different zones of a Municipal Corporation, failed to deduct tax at source from payments made to contract workers. The AO treated them as "assessee in default" under section 201(1) and imposed penalties under section 271C. The assessees contended that the workers were employees, and as payments were below the taxable limit, no tax deduction was required. However, the AO imposed penalties amounting to the tax not deducted. The CIT (A) held that as payments were below the taxable limit, no obligation to deduct tax at source existed, thus cancelling the penalties.

The Tribunal noted that a similar issue had been decided in favor of the assessee in earlier years. The Tribunal held that the payments made to Self Help Groups (SHGs) were not subject to tax deduction as they were more in the nature of an employee-employer relationship rather than a contractor-contractee relationship. As the payments did not exceed the prescribed limit under section 192 of the Income Tax Act, TDS provisions were not applicable. The Tribunal upheld the CIT (A)'s decision to cancel the penalties under section 271C, as the payments to each member of the SHGs were below the taxable limit, relieving the assessees from the obligation to deduct tax at source.

In conclusion, the Tribunal dismissed the appeals of the Revenue, upholding the decision of the CIT (A) to cancel the penalties imposed by the AO under section 271C. The Tribunal's decision was based on the finding that the payments made to the contract laborers forming SHGs were below the taxable limit, absolving the assessees from the obligation to deduct tax at source and consequently from the imposition of penalties under section 271C.