2017 (4) TMI 778 - HC - Indian Laws

Cancellation of work contract awarded to the petitioner - Nature of contract - consultancy contract or works contract - TDS on consultancy services provided - whether deduction of TDS 194C of the Income Tax Act, would help to determine the nature of contract - Held that - The response of the Income Tax Officer indicates that as the assessee filed its return of income for the annual year 2010-11 on 24.09.2010 showing taxable income of ₹ 99,210/- and total tax paid ₹ 30,656/- and no other tax remained payable. Thus, a perusal of the letter reveals that not only was no tax payable to the Income Tax Office in view of the return of income shown by the assessee, as a Contractor, but the Petitioner also failed to substantiate his argument that the full tax liability for the year i.e. for Consultancy services, was made good by him, by filing any document in this regard to fortify his claim. In fact, the Petitioner made a feeble attempt at justifying the above deduction of tax @ of 1% by stating that it had come to his knowledge that the department itself and more particularly BRPD-II, Chungthang, had been deducting Income Tax under Section 194C i.e. @ 2% for consultancy works, similar to the work for which NIT No.01 had been issued and not under Section 194J @ 10%. This statement however is a bald, statement not buttressed by any document and is therefore, not acceptable before any Court of law. Thus, what transpires from the above is that the consultancy works were awarded to the Petitioner by the Respondents on the basis of the Certificate of M/s Vraj & Vaj Constructions. To gauge whether the Petitioner had indeed provided consultancy works in view of the letter of the ITO informing to the contrary, as no other documents were forthcoming from the Petitioner, the Respondent No.4 had to fall back on the income tax deducted at source. The correspondence discussed hereinabove clarifies that the TDS was for contract works and not for consultancy services. Apart from the Agreement documents between M/s Vraj and Vaj Constructions and the Certificate issued by the said Company, no other documents have been furnished to establish that the Petitioner offers consultancy services. In such a situation, it has to be stated that obviously tax would be deducted on the basis of the Income and if the income of the Petitioner was only as a contractor then deductions so made would be for contract works and not for consultancy work. Added to this is the fact that although the Petitioner alleges that all balance tax was paid, the letter of the Income Tax reveals no such fact, in as much it has been stated therein that in this case the assessee filed its return of income for A.Y. 2010-11 on 24.09.2010 showing income of ₹ 99,210/- and total tax paid ₹ 30,656/- and no any (sic) other tax remain payable. This fortifies that the services provided by the Petitioner to M/s Vraj & Vaj Constructions was in the capacity of contractor and not consultant. Merely because three weeks time was allowed to file response does not mean that even after response is filed Respondents are obliged to wait further. That apart, consideration is to be taken of the fact that the impugned letter was only issued on 8.12.2016, much after 01.12.2016, hence the allegations that the order of this Court was flouted has no legs to stand, nor can it be said that the Respondents had a predetermined mind to cancel the work awarded to the Petitioner, which to my mind appears to be a baseless unsubstantiated allegation made by the Petitioner. W.P. dismissed.

Issues Involved:
1. Legitimacy of the Show Cause Notice and Cancellation of Work Order.
2. Classification of Services as Consultancy or Contract Work.
3. Compliance with Tax Deduction at Source (TDS) Requirements.
4. Allegation of Predetermined Decision by the Respondent.
5. Compliance with Court Orders and Procedural Fairness.

Detailed Analysis:

1. Legitimacy of the Show Cause Notice and Cancellation of Work Order:
The Petitioner was aggrieved by the issuance of a Show Cause Notice dated 06.10.2016 and the subsequent cancellation of the work order on 08.12.2016 by Respondent No. 4. The Petitioner sought a writ of mandamus, certiorari, or any other appropriate writ to address the cancellation of the awarded consultancy services for the preparation of a Detailed Project Report (DPR) for additional high-altitude roads in Sikkim. The Petitioner argued that the cancellation was perverse and contrary to the provisions of law.

2. Classification of Services as Consultancy or Contract Work:
The core issue was whether the Petitioner was offering consultancy services or contract work. The Petitioner contended that the services provided to M/s Vraj & Vaj Constructions were consultancy services, and the mere deduction of tax under Section 194C of the Income Tax Act, 1961, instead of Section 194J, would not change the nature of the services. The Petitioner argued that the classification of services as contract work based on TDS was incorrect.

3. Compliance with Tax Deduction at Source (TDS) Requirements:
The Respondents argued that the Petitioner had shown contract receipt under Section 194C of the Income Tax Act for the assessment year 2010-11, indicating the nature of business as "Contractors (others)" and not "Consultant." The Petitioner failed to provide proof of balance tax deposited to the Income Tax Department, despite being requested to do so. The Income Tax Officer's letter dated 29.09.2016 confirmed that the Petitioner had shown the nature of business as a contractor, and no additional tax was payable.

4. Allegation of Predetermined Decision by the Respondent:
The Petitioner alleged that Respondent No. 4 had a predetermined mind to cancel the work order. The Court examined whether the Respondent had acted with a predetermined mind by issuing the letter dated 28.08.2016. The Court found that the Petitioner was given an opportunity to file a response, and the decision to cancel the work order was made after considering the Petitioner's additional reply dated 28.11.2016. The Court concluded that the Respondent did not have a predetermined mind, and the allegation was unsubstantiated.

5. Compliance with Court Orders and Procedural Fairness:
The Court had earlier directed the Respondent to furnish the Income Tax Officer's letter to the Petitioner and granted three weeks' time to file a response. The Petitioner was provided with the letter on 09.11.2016, and the three weeks' time expired on 01.12.2016. The Petitioner submitted an additional reply on 28.11.2016. The Respondent's decision dated 28.11.2016 and the issuance of the impugned letter on 08.12.2016 were found to be procedurally fair and in compliance with the Court's order.

Conclusion:
The Court found that the Petitioner failed to substantiate the claim that the services provided were consultancy services and not contract work. The Respondent's decision to cancel the work order was justified based on the information provided by the Income Tax Officer and the lack of proof from the Petitioner regarding the payment of additional tax. The allegation of a predetermined decision by the Respondent was dismissed as baseless. Consequently, the Writ Petition was dismissed, and the stay on the 2nd Bid was vacated.

Order:
The Writ Petition is dismissed, and the stay on the 2nd Bid granted by the Court on 05.01.2017 is vacated. No order as to costs.

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