2024 (4) TMI 357 - HC - Income Tax

TDS u/s 194C - addition u/s 40(a)(ia) - Payments made to Calcutta Dock Labour Board by the appellant in terms of provisions of clauses 41(5) and 56(1) of the Dock Workers (Regulation of Employment) Scheme, 1970 framed under the Dock Workers (Regulation of Employment) Act, 1948 - HELD THAT - As decided in SRI TARSEM SINGH VERSUS SRI SUKHMINDER SINGH 1998 (2) TMI 596 - SUPREME COURT and VIZAGAPATAM DOCK LABOUR BOARD VERSUS STEVEDORES ASSOCIATION, VISHAKHAPATNAM ORS. 1969 (9) TMI 118 - SUPREME COURT as well as specific provisions of the Act, 1948 and the Regulation Scheme, 1970, we are of the firm view that the contract of employment is between the appellant and the dock workers and not between the appellant and the Board. The Board has merely discharged its statutory obligation with regard to regulation of dock workers. As we find that Section 194C of the Act, 1961 has no application on facts of the present case with regard to payment of wages by the appellant/assessee to the dock workers through the Administrative Committee/Board. There is no contract of supply of labour between the Board/Administrative Committee and the appellant/assessee i.e., the registered employer. The appellant/assessee was not liable to deduct tax at source u/s 194C while making payment of wages to its employees i.e. the dock workers through the Administrative Committee/Board constituted under the Act, 1948 read with Regulation Scheme, 1970. Consequently, the provisions of Section 40(a)(ia) of the Act, 1961 would also not come into play. The impugned order of the Tribunal deserves to be set aside. Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 194C of the Income Tax Act, 1961 to payments made to Calcutta Dock Labour Board.
2. Legality of the relief granted by the Commissioner of Income Tax (Appeals).

Summary:

Issue 1: Applicability of Section 194C of the Income Tax Act, 1961

In the facts and circumstances of the case, the Tribunal held that payments made by the appellant to the Calcutta Dock Labour Board u/s 194C of the Income Tax Act, 1961 were for the supply of labour, thus attracting the provisions of Section 194C. However, the High Court found this conclusion incorrect and perverse, stating that the dock workers employed by the appellant are its employees as per the Dock Workers (Regulation of Employment) Act, 1948 and the Regulation Scheme, 1970. The Board merely allocates dock workers as part of its statutory obligation, and there is no contract for the supply of labour between the Board and the appellant. Therefore, Section 194C is not applicable, and the appellant was not liable to deduct tax at source while making payments to its employees through the Board. Consequently, Section 40(a)(ia) of the Income Tax Act, 1961 does not come into play.

Issue 2: Legality of the Relief Granted by the Commissioner of Income Tax (Appeals)

The Tribunal had set aside the relief granted by the Commissioner of Income Tax (Appeals), holding that the relief was devoid of legally sustainable merits. However, the High Court found that the Tribunal's findings were contrary to the provisions of the Dock Workers (Regulation of Employment) Act, 1948 and the Regulation Scheme, 1970. The High Court concluded that the contract of employment is between the appellant and the dock workers, not between the appellant and the Board. Thus, the relief granted by the Commissioner of Income Tax (Appeals) was legally sustainable.

Conclusion:

The High Court allowed the appeals, set aside the impugned orders of the Tribunal, and answered the substantial questions of law in favor of the assessee and against the revenue. The appellant was not liable to deduct tax at source u/s 194C while making payments to its employees through the Board, and the provisions of Section 40(a)(ia) of the Income Tax Act, 1961 were not applicable.