2001 (9) TMI 257 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of provisions of Section 194C.
2. Liability of the assessee u/s 201 & 201(1A).
3. Validity of the order passed by the Income-tax Officer - TDS.

Summary:

Issue 1: Applicability of Provisions of Section 194C
The primary issue was whether the assessee, Uttar Pradesh State Industrial Development Corporation Limited (UPSIDC), was required to deduct TDS u/s 194C on payments made to the National Industrial Development Corporation Limited (NIDC). The Department argued that NIDC was a contractor and thus liable for TDS deduction by the assessee. However, the assessee contended that NIDC acted merely as a consultant and not as a contractor. The Tribunal examined the agreement dated 7-8-1989 and concluded that NIDC was engaged for consultancy services, including design, engineering, supervision, and construction management, and not as a contractor. Therefore, the assessee was not liable to deduct TDS under section 194C.

Issue 2: Liability of the Assessee u/s 201 & 201(1A)
The Department's stance was that the assessee failed to deduct TDS, thus attracting liability u/s 201 & 201(1A). The Tribunal found that NIDC had deducted TDS @ 2% from the contractors on behalf of the assessee and deposited the same with the Government. It was noted that NIDC acted on behalf of the assessee, and there was no loss to the revenue. Consequently, the Tribunal held that the assessee was not liable for further TDS deduction or interest u/s 201(1A).

Issue 3: Validity of the Order Passed by the Income-tax Officer - TDS
The assessee raised an additional ground challenging the legality of the order dated 30-4-1997, arguing it was beyond the permissible time limit. The Tribunal noted that while there is no fixed time limit for passing orders u/s 201(1A), a delay of three or four years is not unreasonable. However, since the primary demand for TDS was not maintainable, the consequential interest u/s 201(1A) was also not justified. Thus, the order demanding interest was quashed.

Conclusion:
The Tribunal allowed all seven appeals, ruling in favor of the assessee on all grounds. The assessee was not liable to deduct TDS under section 194C, and the demand for TDS and interest u/s 201 & 201(1A) was not justified.