2012 (2) TMI 734 - AT - Income Tax

Summary

Issues Involved:
1. Contractual relationship between the assessee and Calcutta Dock Labour Board (CDLB).
2. Applicability of Section 194C of the Income Tax Act to payments made to CDLB.
3. Disallowance of expenses u/s 40(a)(ia) due to non-deduction of TDS.

Summary:

1. Contractual Relationship between Assessee and CDLB:
The Assessing Officer (AO) challenged the correctness of the CIT(A)'s order, which treated that there is no contractual relationship between the assessee and CDLB. The CIT(A) upheld the assessee's contention that CDLB acts as a conduit pipe between a 'registered employer' and 'registered workers,' and there is no direct contractual relationship between the assessee and CDLB. This position was supported by judgments from the jurisdictional High Court and the Apex Court, which stated that the Dock Labour Board operates as an agent of stevedores, who are the actual employers.

2. Applicability of Section 194C:
The AO contended that the provisions of Section 194C are applicable to the payments made to CDLB, as these payments are for the supply of labour. The CIT(A) disagreed, stating that since there is no contractual relationship between the assessee and CDLB, Section 194C does not apply. However, the Tribunal found that the CIT(A)'s reasoning was flawed. It was noted that even if there is no written contract, an oral contract suffices for invoking Section 194C. The Tribunal emphasized that payments made for the supply of labour are covered under Section 194C(1), regardless of the employer-workman relationship between the assessee and the workers supplied by CDLB.

3. Disallowance u/s 40(a)(ia):
The AO disallowed the entire payment of Rs 2,22,58,795 made to CDLB under Section 40(a)(ia) due to non-deduction of TDS. The CIT(A) deleted this disallowance, but the Tribunal vacated the CIT(A)'s reasoning and remitted the matter back to the CIT(A) for fresh adjudication. The Tribunal directed the CIT(A) to address all other contentions raised by the assessee and to issue a speaking order in accordance with the law after giving a fair hearing to the assessee.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remitting the matter back to the CIT(A) for fresh adjudication, and directed that the assessee be given the opportunity to present any legal and factual pleas. The observations made for the assessment year 2006-07 were deemed equally applicable to the assessment year 2007-08.