2016 (3) TMI 358 - AT - Income Tax

Deduction of TDS under section 194C - contract for carrying out the specific work - Held that - From the details given, the AO and the ld. CIT (A) has worked out the average cutting and sawing charges of more than ₹ 2155/- per day paid to the said M/s. Garvit Stonex, M/s. Chanda Marbles & M/s. Nidhi Granites. In our view, the said firms/companies are doing the edge cutting and sawing on regular basis and are also having business relationship with the assessee. The regular bills were being raised by the said concerned persons on the assessee and the assessee had been making the payment to the said persons. We do not agree with the contention of the assessee that there is no written contract or oral contract with the said persons/firms which make the payment amenable for deduction of TDS under section 194C of the IT Act. We do not find force in the submissions, as per our understanding, under the contract at every promise and every set of promises are formed. The consideration for each other is an agreement and an agreement enforceable by law is a contract. In the present case, the contract stands concluded when the assessee asked M/s. Garvit Stonex and others to do the edge cutting and sawing of granite blocks and convert them into marble tiles for it for a consideration. The moment the said contractors/persons doing the sawing and edge cutting of the marble blocks, the said persons are entitled for the amount required to be paid as per the bills raise by them. In fact, in the present case after doing the edge cutting and sawing, the charges were even paid by the assessee, in our understanding, a contract has come into existence between the assessee and M/s. Garvit Stonex and others. In our view, the assessee is responsible for paying the amount to such persons i.e. contractor for carrying out the specific work. Therefore, the assessee is liable to deduct the tax on such payments. Since the assessee has failed to deduct the tax on the amount paid by it to such persons/contractor, the assessee is duty bound to deduct the tax, and non deduction of tax by the assessee, attracts the provisions of section 40(a)(ia). We will be failing in our duty if we do not discuss the amendment brought in by the Finance (No. 2) Act 2014 with effect from 1.4.2015 by virtue of which proviso to section 40(a)(ia) has been inserted, which provides that if any such sum taxed has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of previous year, and further, section 40(a)(ia) has been substituted wherein the 30% of any sum payable to a resident has been substituted. In the present case, the authorities below has added the entire sum of ₹ 7,51,322/- by disallowing the whole of the amount. Though the substitution in section 40 has been made effective with effective from 1.4.2015, in our view the benefit of the amendment should be given to the assessee either by directing the AO to confirm from the contractors, namely, M/s. Garvit Stonex, M/s. Chanda Marbles and M/s. Nidhi Granites as to whether the said parties have deposited the tax or not and further or restrict the addition to 30% of ₹ 7,51,322/-. In our view, it will be tied of justice if the disallowance is only restricted to 30% of ₹ 7,51,322/- - Decided partly in favour of assessee

Issues Involved:
1. Rejection of the application under Section 154.
2. Applicability of Section 40(a)(ia) concerning the non-deduction of tax under Section 194C.
3. Interpretation of the contractual nature of payments for edge cutting and sawing charges.
4. Delay in filing the appeal.

Detailed Analysis:

1. Rejection of the Application under Section 154:
The assessee contended that the learned CIT (A) erred in law and on facts by rejecting the application under Section 154, thereby agreeing with the addition of Rs. 7,51,322 under Section 40(a)(ia) of the IT Act, 1961. The CIT (A) maintained that there was no mistake apparent from the record, and the original order was based on merit. The assessee's application for rectification was dismissed as it was not found to contain any apparent errors.

2. Applicability of Section 40(a)(ia) Concerning the Non-Deduction of Tax under Section 194C:
The core issue was whether payments made for edge cutting and sawing charges were subject to tax deduction under Section 194C. The AO concluded that the payments were contractual and thus required TDS deduction. The CIT (A) upheld this view, stating that the payments were indeed in the nature of contractual payments, even if no formal contract existed. The Tribunal agreed, noting that the nature of the transactions implied an oral contract, making the payments liable for TDS under Section 194C. Consequently, the non-deduction of tax attracted the provisions of Section 40(a)(ia).

3. Interpretation of the Contractual Nature of Payments for Edge Cutting and Sawing Charges:
The assessee argued that there was no written or oral contract with the parties performing the edge cutting and sawing, and thus, the payments should not be considered contractual. However, the Tribunal observed that the consistent payments and the nature of the transactions indicated an implied contract. The Tribunal referenced the Contract Act, noting that an agreement enforceable by law constitutes a contract. In this case, the regular transactions and payments to the contractors for specific work formed a contract, making the payments subject to TDS under Section 194C.

4. Delay in Filing the Appeal:
The appeal was filed with a delay of 211 days. The Tribunal condoned the delay after considering the reasons provided by the assessee, which were deemed satisfactory.

Conclusion:
The Tribunal upheld the applicability of Section 40(a)(ia) due to the non-deduction of tax under Section 194C, agreeing that the payments for edge cutting and sawing charges were indeed contractual. The appeal was partly allowed, with the Tribunal directing the AO to either confirm the tax deposit by the contractors or restrict the disallowance to 30% of Rs. 7,51,322, in line with the amendment brought by the Finance (No. 2) Act 2014. The appeal was partly allowed in this manner. The order was pronounced in the open court on 29/01/2016.

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